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Recall that last November, 13 OPEC members plus Russia and other non-OPEC members agreed to cut their oil production levels to help curb the global oil glut and hopefully raise crude oil prices. In addition, they created a seven-member team called the Joint OPEC/Non-OPEC Ministerial Monitoring Committee (JMMC) to help countries stick to the plan.

Over the weekend, the JMMC huddled in Kuwait to revisit the production deal that OPEC and non-OPEC members had signed.

So, what did they talk about and how did their meeting affect the oil markets? Here are our key takeaways:

No commitment to extend

Perhaps the biggest takeaway from the event is that the team has avoided any commitment to extend the deal. You see, oil speculators had been hoping that the members would agree to stretch the deal at least until the end of the year as oil prices are still around their pre-deal levels.

Instead, the JMMC only asked the Joint OPEC/Non-OPEC Technical Committee (JTC) and the OPEC Secretariat to “review the oil market conditions and revert to the JMMC in April 2017” regarding the extension of voluntary production adjustments. In short, they effectively said “we’ll get back to ya later.”

Oil market update

The JMMC took the opportunity to virtual high five OPEC and non-OPEC members for raising their deal conformity level to 94% in February 2017, around 8% higher than their January performance. BFD, since OPEC members are notorious for not complying with production cut agreements.

The committee also downplayed the lack of oil price rallies by pointing to factors such as low seasonal demand, refinery maintenance, and rising non-OPEC supply that “have slowed down the positive impact of the production adjustments on inventory drawdowns.” Of course, it also didn’t help that oil some speculators have liquidated their long positions after the deal was announced.

OPEC/Non-OPEC members urged to step up

Essam Abdul Mohsen Al-Marzouq, Kuwait’s Oil Minister and JMMC’s Chairman, urged OPEC members to fully comply with their production cut pledges.

He pressed that “more has to be done,” and adding that “we need to see conformity across the board. We assured ourselves and the world that we would reach our adjustment to 100% conformity.”

Not many are betting on a deal extension.

Naturally, the non-committal nature of the JMMC’s statement fueled talks that the production cut deal won’t be extended at all. Oil prices initially rallied at the somewhat optimistic tone of the statement before doubts resurfaced and dragged prices back to last week’s lows.

We don’t have far to look for the culprit. Analysts point to higher oil production in the U.S., which many believe will undermine the OPEC’s production cut and discourage other members from extending their production cut commitment.

Kuwait’s Al-Marzouq hinted of the goal posts that they’re looking at. In Bloomberg interview, he shared that (emphasis ours):

“What we were hoping actually at the beginning that U.S. inventories would slowly come down. Not drastically, but slowly come down…What we are looking for is a five-year average of inventories. And that stands right now at 285 [million barrels] above that five-year average. So once the inventories start going down, hopefully we will go to the five-year average, of which we hope to reach around the end of the third quarter, hopefully.”

Basically, they’re looking for even the smallest signs that Uncle Sam’s oil inventories would soon go down, at least fast enough to hit the five-year average by Q3 2017.

U.S. Weekly Crude Oil Inventories in 2017 vs. the Last 5 Years
U.S. Weekly Crude Oil Inventories in 2017 vs. the Last 5 Years

Well, that’s not happening anytime soon. Just last week energy firm Baker Hughes printed that active oil rigs in the U.S. have climbed by 20 to 809. It marked the 10th consecutive week that rigs have risen and a 75% increase in total rigs from a year ago. Yikes!

This is probably why some members are already hinting of getting out of more production cuts. Saudi Arabia, which agreed to shoulder most of the cuts, is now saying that exports, and not production, is key to re-balancing the oil market. Iraq, which also agreed to heavy cuts, is now echoing the sentiment with Iraq Oil Minister Jabbar al-Luaibi saying that “production should be separate from export.”

Not all hope is lost though. Some oil junkies also point out that the committee may just be playing possum. That is, they’re likely avoiding talks about further cuts and risk over-hyping expectations before getting the thumbs up from participating countries.

For now, it looks like we’ll have to wait until the JMMC meets again in April to hear what they’ll recommend to participating countries before the cartel meets on May 25. Meanwhile, keep close tabs on the major oil players and what they’re saying about the possibility of further production cuts!