The Organization of Petroleum Exporting Countries will have a series of meetings scheduled for August 7-9. The meeting will be co-chaired by Kuwait and Russia and will include OPEC and non-OPEC countries. The main topic on the docket is the low compliance rate with the crude-oil production cuts.
The meetings will take place in Abu Dhabi, the capital of OPEC member country, the United Arab Emirates.
Compliance in the agreement has slipped lately, mainly because of prices remaining low. OPEC’s compliance for the month of June stood at 78%, which is down from an average of 92% for the first six months of the agreement. The agreement was to remove 1.8 million barrels of oil per day from the global market in an effort to raise the price of crude.
The United Arab Emirates promised to step up their compliance rates starting in September. This came after Saudi Arabia, the highest producing OPEC country, announced that they will tighten their belt further while increasing the pressure on the nations that aren’t complying with the cuts.
Libya and Nigeria are OPEC nations but are exempt from the cuts due to internal strife and violence that have naturally lowered their productions. Iraq plans to attend the meeting, and OPEC’s second largest producer argues that their country should also be exempt since they are currently battling the Islamic State.
OPEC has invited some non-members to attend the August meeting, but so far, none of the invitations have been confirmed.
Two OPEC nations have announced that they will not attend the meeting in Abu Dhabi, Algeria and Venezuela. Both nations sit on the committee that oversees compliance but have had less than stellar compliance rates. Algeria has averaged 70% compliance rate and Venezuela has only managed a 39% compliance rate so far.
Venezuela has been dealing with violent protests for months now. On Sunday, there were bloody clashes between demonstrators and police during an election for a new legislative body. President Donald Trump’s administration is currently weighing sanctions against Venezuela, which would further affect the OPEC nation. Roughly one third of the country’s oil exports are purchased by the United States. The U.S. is also one Venezuela’s few customers that pays in cash.
“Depending on how the Trump administration decides to proceed going forward, of course that could have implications, including potentially blocking imports of Venezuelan crude,” commented Harry Tchilinguirian, a commodities analyst at BNP Paribas in London. “It’s very unclear at this stage what course the U.S. administration will follow.”
Other countries have also had low compliance. Iraq’s compliance was a low 29% for the month of June, and the United Arab Emirates’ compliance was only 60%. According to undisclosed sources, some OPEC countries argue that the independent agencies that assess the compliance rates are overestimating their production.
The meeting will serve to rally OPEC’s forces and undo any damage from rogue nations like Qatar and Ecuador. Brent crude finally made it into the $50 range, and hopefully the meeting will help keep prices rising.
Article written by HEI contributor Raymond Arrasmith.