OPEC: Everyone is Complying but Russia- Research Report

OPEC: Ready to Roll?

Sentiment Indicator : positive

This weekend's Joint OPEC/non-OPEC Ministerial Monitoring Committee (JMMC) meeting in Kuwait reaffirmed strong compliance to date with the collective agreement to reduce output by 1.8 mb/d.  The JMMC statement noted that compliance had reached 94% in February, an increase of 8% over January's level. The committee acknowledged that low seasonal demand, refinery maintenance, and rising non-OPEC supply had slowed down the impact of the production adjustments on inventory draw downs. However, it noted that the situation should begin to improve with the anticipated end of the refinery maintenance season and a noticeable slowdown in the US stock build, as well as a reduction in floating storage. Enchanted AprilThe JMMC ensured that all eyes would be on their April meeting by announcing that they would take up the all important extension issue then. The JMMC requested that the OPEC secretariat's joint technical committee review oil market conditions and revert to the JMMC next month regarding the extension of the production adjustment agreement. The JMMC will then deliberate before submitting it's roll over recommendation to the participating producers. We see momentum building for an extension. In advance of this weekend's meeting, Algeria joined Kuwait in calling for a 6 month extension. The Iraqi oil minister, whom we have previously identified as a potential spoiler, stated that market conditions will determine whether a roll over was warranted. He added that the decision would be taken unanimously and that Iraq would be part of the decision and would "not be deviating from it." Russia, which like Iraq, has struggled to fully meet its commitments, once again indicated that it was too early to make an extension decision but added that the December agreement is working well and that everyone was dedicated to ensuring compliance. We think both Russia and Iraq will eventually be in the roll over camp because their leaders will determine that their domestic interests will be better served by staying the course. However, we cannot rule out some confusing comments from these two en-route to the next JMMC meeting and the all important May 25 OPEC meeting. Of course the most important player to watch will be Saudi Arabia, who remains the driver of the OPEC bus.

RBC Capital Markets, LLCHelima Croft (Global Head of Commodity Strategy) RBC Capital Markets, LLCChristopher Louney (Commodity Strategist)

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