Opec report – more questions than answers

The market looks to the Opec monthly report for guidance. Over the years since it started at a few faxed pages, rather thin on content, that turned up when it turned up, it has acquired some gravitas, a counterpoint to the IEA report.

This month’s report has headline figures to please producers — demand forecasts up, non-Opec production growth forecasts down.

But it is also causing some head scratching. It appears to rewrite, or at least reinterpret, Opec policy.

It’s August, with staff on holiday and those that aren’t wishing they were. But in markets that can move in the short term on rumour spinning and misunderstandings, that really isn’t an excuse.

The report says: “The voluntary production adjustments outlined by the Declaration of Cooperation continued to impact supply, while Opec members have decided to [sic] a deeper production adjustment as well as limitations on exports.”

This is just wrong, unless the prolific press statements from Opec and the comments from ministers constitute a great conspiracy to hide the true outcome of deliberations. What is this reference to deeper cuts all about?

To remind you, after the May ministerial conference, current Opec president and Saudi oil minister Khalid al-Falih said ministers had considered options to extend the cuts for six, nine or 12 months and had looked at deepening cuts. But “nine months is the optimum”.  You will look in vain for any reference in the post-meeting statement to anything but a rollover of existing cuts.

And the July Joint Ministerial Monitoring Committee (JMMC): “recommended keeping the extension of the Declaration of Cooperation beyond 1Q18 as an option should further action be required for the stabilisation of the market.” That’s an extension of the extension, not a deepening of cuts and not a shift to export limits.

And when a batch of underachievers was summoned to Abu Dhabi this week, their remedial work only required recommitment to existing pledges.

Earlier, the report talks of a “shift in the oil complex momentum … after Opec officials indicated they would move their focus to limiting exports.” Is this a reference to Saudi pronouncements about limiting exports in August? If so, the report should cite Saudi Arabia, not “Opec officials”. Saudi Arabia is not Opec. If it does not refer to the Saudi commitment to 6.6mn b/d August exports, what and who does it refer to?

To compound matters, the report was issued this morning without a self-declared Saudi Arabia production number for July. The figure was subsequently added to the online report but no addendum or correction was issued.

The market benefits from having the MOMR to read against the IEA report. It does nobody any good if its credibility is undermined.

 

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