OPEC and its allies will adjust individual oil production caps according to each member’s ability to pump more crude under their plan to add up to 1 million b/d of supply, Saudi energy minister Khalid al-Falih said Saturday.

The allocations will be determined by a six-country monitoring committee chaired by Saudi Arabia and Russia, Falih said. Five of the six members of the Joint Ministerial Monitoring Committee — Saudi Arabia, Russia, Kuwait, Algeria and Oman, but not Venezuela — hold most of the coalition’s spare capacity, Falih noted.

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The committee “will be coordinating amongst ourselves the allocations of these volumes to address the incremental demand that is materializing in the second half and to prevent an overtightening of the market that will be harmful to demand,” Falih said in a press briefing, after OPEC’s 10 non-OPEC allies ratified their new agreement in Vienna.

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“That implies that there will indirectly be a reallocation of cuts,” he added.

This appeared contrary to the understanding of Iranian oil minister Bijan Zanganeh, who was opposed to increasing quotas under the deal. Iran is facing the snapback of US sanctions on November 5 that analysts say could take up to 1 million b/d of its production off the market.

Zanganeh’s description of the deal was that each country would produce only up to its individual allocation and not infringe on the market share of other members unable to pump more.

In an interview with S&P Global Platts, Zanganeh said late Friday that OPEC should not be in the business of caving in to US demands, and blamed the sanctions for the recent price rise.

“Generally, my point was that OPEC shouldn’t give a positive signal to the US and it didn’t,” said the minister, who left Vienna early Saturday and did not attend the meeting with non-OPEC partners.

Falih said that while he respects the positions of other OPEC members, “my bigger guiding principle is to be respectful of what the market needs,” adding that Saudi Arabia had already begun to ramp up production in anticipation of higher demand in July.

Russian energy minister Alexander Novak said Russia would comply with its quota of 10.9 million b/d in June, but would look to boost output up to 200,000 b/d starting in July. Russia and Saudi Arabia had met several times in the weeks leading up to the meeting to align their positions.

“We have come to a very important conclusion based on the situation today and forecasts we have to return our observance of the deal to 100%,” Novak said.

MEET TO DISCUSS

The JMMC will next meet September 22-23 in Algiers.

OPEC’s next full meeting is scheduled for December 3 in Vienna, with non-OPEC partners joining talks a day later.

Falih declined to give an exact timetable of how the 1 million b/d would be ramped up, saying the JMMC would be monitoring market conditions.

Should it decide that supply and demand fundamentals warrant a significant change in output strategy, OPEC can call an extraordinary meeting, he said.

“In terms of where supply will be in September, it will depend on what demand is, as well as any continued reduction of supply from some of the 24 countries,” Falih said. “We will not wait until September to dialogue. We talked already about having meetings between now and then, perhaps by telephone.”

Ironically, the committee had been tasked with enforcing production discipline among the group, Falih said. But, with over-compliance on the committed cuts averaging around 983,000 b/d over the last three months “now we sort of encourage people to exceed [their quotas] so that we bring overall conformity to 100%”, he added.

The deal commits OPEC and 10 non-OPEC partners, led by Russia, to cut 1.8 million b/d through the end of 2018.

Output of the 12 members with hard quotas was 710,000 b/d below their combined caps. Crisis-wracked Venezuela, whose production has been in freefall, accounts for some 610,000 b/d of that.

The International Energy Agency estimated that the non-OPEC participants produced 220,000 b/d above their caps in May.

That leaves the combined 24-country OPEC/non-OPEC coalition with around 500,000 b/d of cushion under its total ceiling.

UAE energy minister Suhail al-Mazrouei, who is serving as OPEC‘s president this year, said the producer coalition would not flood the market beyond what supplies it needs.

“Are we going to overdo it? No. We have demonstrated the capabilities to do what is required,” Mazrouei said.

–Staff, newsdesk@spglobal.com
–Edited by Andy Critchlow, newsdesk@spglobal.com

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