[ROLLING HEADLINE] JMMC and OPEC+ on Wednesday at 12:00BST/07:00EDT and 12:30BST/07:30EDT

JMMC RECOMMENTDATION

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Analysis details (08:47)

OVERVIEW: This meeting will be more convoluted than the July confab as the group is set to decide on policy for September. Thus far, sources have suggested that OPEC+ will likely discuss either maintaining current production or increasing output by a small increment, with a narrow majority of the sources cited by Reuters (five out of eight) implying that production will likely be held. At the prior meeting, the group agreed to hike output by 648k BPD in August, in line with prior plans, which reverses the COVID cuts implemented in 2020, but many members have fallen short of targets.

SCHEDULE: On Wednesday, the Joint Ministerial Monitoring Committee (JMMC) will review the findings of the JTC and make a recommendation to the decision-making OPEC+ group. The JMMC is set to meet at 12:00BST/07:00EDT, with the OPEC+ ministerial meeting guided around 12:30BST.

DEMAND: Tuesday’s JTC findings expect supply surplus on the global oil market in 2022 will be 0.8mln BPD (-200k BPD from the prior forecast) on average in the base case. The alliance's oil market analysis is based on a modest slowdown in GDP growth, according to delegates cited by EnergyIntel. Further, the JTC report shows growth in global oil demand slowing to 2.7mln BPD in 2023 from 3.4mln BPD this year - “That should leave scope for an increase in Opec-plus production next year”, the desk said.

SUPPLY: Upping production will please Washington, with a Senior US official recently stating that the administration is optimistic that there could be some positive announcements coming out of OPEC. However, OPEC+ is burdened with limited spare capacity, with Saudi Arabia and the UAE likely to bear most of the output hikes on their shoulders. As a reminder, the IEA estimates Saudi has a short-order capacity (reachable in less than 90 days) of around 1.2mln BPD, with the longer-term capacity predicted to be nearer to 2.1mln BPD. The argument OPEC watchers have been flagging is the state of confidence in the group (to stabilize the oil market) if they have no spare capacity, with oil traders warning of a potential upward spiral in oil prices if this “worst case” scenario was to occur. OPEC's quota-bound members undershot the July output target by 1.3mln BPD, according to an OPEC survey cited by Reuters. EneryIntel meanwhile forecasts that global spare capacity stands at 2.5mln BPD – mostly held by Saudi Arabia – “That's a fairly narrow buffer in a world that has been consuming around 100mln BPD”, the desk writes. There were source reports via Fox Business which suggested the Saudi King told President Biden that Saudi will push for OPEC+ to increase production at the upcoming meeting – OPEC watchers via Bloomberg doubt this will be fulfilled.

SOURCES: Reuters sources added that given the easing of prices since March, there isn’t a strong argument to further hike output at this meeting. Meanwhile, in the case of a hike, no increments have been flagged thus far and this will likely be discussed at the meeting, with sources throughout the meeting days likely to test the waters. Note, that an increase will have to be greenlighted by all members.

HOUSE VIEWS: Analysts are in unison regarding the problem of spare capacity. RBC believes that OPEC+ will agree to continue adding several hundred thousand barrels per month, in line with the previously agreed production agreements, with most of the production anchored by Saudi Arabia amid spare capacity - “With the sanctions on Russian oil set to take effect in December and the US SPR release to wind down in October, we do not believe that the additional Saudi and UAE barrels will cause an oversupply situation like in 2018”, the desk said. Goldman Sachs meanwhile suggests “Our balance assumes another production hike in September and two more by year-end, but we see greater risk for a pause than for a faster increase in output. With the market back into a large deficit, we reiterate our bullish view, with a larger increase in production tomorrow only exacerbating the structural tightness of the oil market.”

03 Aug 2022 - 12:33- EnergyData- Source: Newsquawk

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