Will they or won’t they? That is the question observers ask as they anticipate the outcome of the monthly virtual meeting on July 15 of the Joint Ministerial Monitoring Committee (JMMC). 

The committee is tasked with overseeing compliance with the rigorous production cuts committed to last April by the 23 members of OPEC+, an alliance between OPEC (Organization of the Petroleum Exporting Countries) and 10 allied nations led by Russia. 

The question refers to an extension of the historic production cuts of 9.6 million barrels per day (bpd) in response to the economic devastation caused by the coronavirus disease (COVID-19) pandemic. The historic move allocated cuts worth 9.7/9.6 million bpd in May and June, and an extension was granted in July. The trajectory is downward sloping, with cuts worth 7.7 million bpd through 2020 and 5.8 million bpd through April 2021.

OPEC’s June production was, at 22.3 million bpd, the lowest since September 1990 when the First Gulf War wiped out Iraq’s production. Compliance had been an issue, which was watched with hawk’s eyes by the two co-chairs of the JMMC — Saudi Energy Minister Prince Abdul Aziz bin Salman and Russian Energy Minister Alexander Novak. The laggards, namely Iraq, Nigeria, Kazakhstan, Angola and others, committed to compensate for non-compliance during the third quarter, which would amount to roughly 420,000 bpd per month over the coming three months.

The stern words of the two JMMC co-chairs bore fruit and OPEC+ compliance stands at 106 percent, slightly higher for OPEC member countries than for the organization’s allies. If OPEC+ eases production cuts according to schedule, the laggards’ compensation would amount to roughly 22 percent of the total.

Markets have rebalanced somewhat. The best sign that oil has recovered since its April lows and is potentially further on the mend, is Brent’s widening contango. Over the last few weeks Brent fluctuated above $40 per barrel reaching $43.29 last Wednesday, and WTI is hovering around $40. By Monday mid-morning, both WTI and Brent traded slightly downward reaching $39.76 and $42.59 respectively.

Last week the International Energy Agency adjusted its demand projections upwards by 400,000 bpd for the full year of 2020. They now foresee demand to shrink by 7.9 million bpd during this calendar year, which equates to roughly 8 percent compared with 2019. The US Energy Information Administration is not far from these numbers forecasting a full year demand decline of 8.15 million bpd.

This is not an easy decision for OPEC+.

Some market observers are concerned over taper tampering, if OPEC+ takes the foot off the petal.

On one hand demand is bouncing back, especially in Asia, which puts an upward pressure on the oil price. Supply was not only reduced among the OPEC+ member countries, but elsewhere too. In the US for instance, 600,000 bpd worth of production came off the markets and several observers think that the US will not see an output of 13 million bpd again for a very long time if not ever. The Baker Hughes count of active rigs stood at 181, which is the lowest since 2009. Heightening tension in Libya and the potential for all-out warfare sadly also lower expectations for oil exports from the North African nation.

On the other hand, there are serious concerns on the further spread of COVID-19 across several states in the US, Brazil and Latin America. Australia had to put Melbourne under lockdown and there have been virus flare ups in Europe and Asia.

Amid this uncertainty, the JMMC will not take a decision lightly. Indications are that Russia’s oil companies are preparing to boost production unless otherwise instructed by the Energy Ministry. The Abu Dhabi National Oil Company too is said to be gearing up its exports in August. Still, the virus induced uncertainty of the global economic outlook means that many among the 23 OPEC+ members may choose to proceed with caution.

• Cornelia Meyer is a business consultant, macro-economist and energy expert. Twitter: @MeyerResources