Saudi Arabia kept up the pressure on OPEC+ nations that have been exceeding their oil-output targets, hours before a meeting to discuss their agreement. King Salman bin Abdulaziz called Nigerian President Muhammadu Buhari to emphasize the importance of complying with production quotas and compensating for past shortcomings, state-run Saudi Press Agency said on Wednesday.
Nigeria, Iraq and several other nations have consistently fallen short of their pledges to cut production as the Organization of Petroleum Exporting Countries and its allies seek to offset the sharp drop in oil demand triggered by the coronavirus pandemic. Their level of compliance will be one of the main subjects of discussion at a video conference later on Wednesday of the OPEC+ Joint Ministerial Monitoring Committee, which is chaired by Saudi Arabia and Russia. It’s due to start at 4 p.m. Vienna time.
The coalition of producers is restoring some of the vast quantities of crude halted during the depths of the Covid-19 crisis. So far, the supply boost hasn’t derailed oil’s fragile recovery, which has seen prices climb to a five-month high. Brent futures traded near $45 a barrel in London on Wednesday.
But continuation of that trend will depend on maintaining discipline and ensuring that Nigeria, Iraq and other nations fulfill their promises to make amends. Fuel demand and cargo prices have faltered in critical Asian markets, underscoring the fragility of crude’s rebound.
“The Saudis have certainly been holding a consistent and firm position when it comes to compliance,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London. “Given that the oil demand recovery is still very uncertain, they understand the importance of delivering the pledged output reductions for the global oil balance.”
Riyadh’s struggle to enforce compliance has been a long-running issue. Both Iraq and Nigeria have chafed against OPEC quotas as they seek to make up for output lost to disruptions and conflict in the past.
Baghdad has stepped up its performance, implementing 85% of its targeted reductions in July, according to OPEC data. It’s promised to cut an extra 400,000 barrels a day this month and next, on top of the 850,000 barrels it’s already obligated to curb, to make up for earlier non-compliance.
While that is better than in the past, expecting the crisis-torn nation to make extra compensatory cutbacks is probably a “bridge too far,” according to RBC Capital Markets LLC.