Timipre Sylvia: He Who the Cap Fits

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Nume Ekeghe reports that the appointment of the Minister of state for Petroleum Resources, Timipre Sylva, by the Joint Ministerial Monitoring Committee of the Organisation of Petroleum Exporting Countries as Special Envoy to some participating countries in the ‘Declaration of Cooperation’ was fitting

When the Minister of state for Petroleum Resources, Timipre Sylva, was appointed by the Joint Ministerial Monitoring Committee (JMMC) of the Organisation of Petroleum Exporting Countries (OPEC) as Special Envoy to some participating countries in the ‘Declaration of Cooperation’ (DoC), it was deemed by stakeholders as a portfolio well deserved.

The mission, which is in line with the principles of fairness, transparency and equity, is to assist the Special Envoy to engage in further consultations with DoC participating countries which include Congo, Equatorial Guinea, Gabon and South Sudan.

According to a press statement from OPEC, this decision was taken at the 26th meeting of the JMMC, held on February 3, 2021. At the meeting, the Chair of the Committee, HRH Prince Abdul Aziz bin Salman, Saudi Arabia’s Minister of Energy, and Co-chair, HE Alexander Novak, Deputy Prime Minister of the Russian Federation, commended the positive efforts of all countries participating in the DoC for the monumental strides taken towards attaining full conformity with their voluntary adjustments in output.

The statement acknowledged that participating countries have been proactive and pre-emptive in measures taken to mitigate the devastating impact of the COVID-19 pandemic on the oil market.

OPEC, in its statement, said, “While progress has been achieved in introducing a greater degree of stability in the oil market since the historic decisions taken in April 2020, Participating Countries will not rest on their laurels. Sustainable oil market stability necessitates a continual renewal of effort, engagement and responsiveness to factors affecting the market.

“The purpose of this mission is to hold consultations with the respective leaders of these countries on the DoC market rebalancing efforts. In particular, the Special Envoy will discuss matters pertaining to conformity levels with the voluntary production adjustments and explore how Participating Countries can collectively support and assist each other in achieving full conformity with their supply adjustments.”

The statement also said that Nigeria’s Oil Minister, Sylva was expected to also discuss with relevant authorities about the compensation mechanism in accommodating underperformed volumes as agreed at the June ministerial meetings, and later amended in September 2020.

In addition, the mission will solidify the dialogue channels between Participating Countries, and enhance transparency and information exchange. Given the geographic proximity of these countries, it is a rare opportunity for Ministers and leaders to safely meet in person, following months of virtual conferencing.

Unprecedented Milestone

The Declaration of Cooperation constitutes an unprecedented milestone in the history of OPEC. For the first time ever, OPEC Member Countries collaborated with 11 non-OPEC oil-producing countries (now 10 – Equatorial Guinea became an OPEC Member in May 2017) in a concerted effort to accelerate the stabilisation of the global oil market.

The DoC was an outcome of the Joint OPEC and non-OPEC Producing Countries’ Ministerial Meeting held on December 10, 2016, and was effective for an initial period of six months. The remarkable success realised through this unprecedented cooperation has led to its extension multiple times.

Building on the success of the DoC, its participants recognised the importance of establishing a more permanent platform focused on longer-term cooperation. Thus, at the 6th OPEC and non-OPEC Ministerial Meeting, held on July 2, 2019, OPEC Member Countries and attending non-OPEC oil-producing countries endorsed the ‘Charter of Cooperation.’

The Charter provides a platform to facilitate dialogue and exchange views regarding conditions and developments in the global oil and energy markets and the goal is to contribute to a secure energy supply and lasting stability for the benefit of producers, consumers, investors and the global economy.

Duties

As special envoy, Sylva will liaise with Congo, Equatorial Guinea, Gabon and South Sudan to discuss improving their implementation, and compensating for previous misses. This is in line with pushing to quickly clear the oil surplus left behind by the pandemic, a bullish signal for prices that have already surged to a one-year high.

Ministers led by Saudi Arabia and Russia “stressed the importance of accelerating market re-balancing without delay” amid “uncertain” prospects for the global economy and oil demand on Wednesday. Crude in New York extended gains after the communique, advancing as much as 2.9 per cent to above $56 a barrel.

OPEC and its allies have taken a two-month pause while restoring some of the millions of barrels of crude output they halted when the coronavirus emerged to crush fuel demand last spring. Saudi Arabia is tightening supplies further this month and next with an extra cut of 1 million barrels a day.

The committee left any discussion about what to do after the two-month hiatus ends to its next full ministerial meeting in early March. OPEC+ is currently withholding just over 7 million barrels of daily output, or roughly seven per cent of global supplies.

The online meeting of the Joint Ministerial Monitoring Committee was unusually smooth and brief for an OPEC+ gathering, lasting just over an hour. When the 23-nation coalition met last month, ministerial talks spilled into two days and were marred by discord over how far to constrict supplies.

Extra Cutback

Saudi Energy Minister Prince Abdulaziz bin Salman had sprung the kingdom’s extra million-barrel cutback onto a mostly unsuspecting market, and against the counsel of his Russian counterpart, Alexander Novak. WTI has risen about 17 per cent since then.

While Riyadh has often pushed for measures that would support prices — and thus help cover government spending — Moscow takes a different view, fearing that high prices will provoke a flood of supplies from rivals like U.S. shale drillers.

But in the communique endorsed by ministers on Wednesday, OPEC+ members seemed closely aligned on the merits of keeping a tight leash on supplies. The additional Saudi curb was “noted” by the committee, “with gratitude.”

The group’s internal data showed their strategy will continue to succeed. Bloated oil inventories in developed nations should subside back to their 2015-2019 average by August, according to a report compiled for the JMMC.

“The gradual rollout of vaccines around the world is a positive factor for the rest of the year boosting the global economy and oil demand,” according to the committee’s statement.

Debate

Still, the debate could be more lively next month, when OPEC+ will need to decide whether to revive another chunk of halted output. The group is restoring supplies in increments of as much as 500,000 barrels a day each month.

The committee’s statement urged members to remain “vigilant and flexible.” The JMMC’s leaders once again pressed members who haven’t fully implemented the cuts they promised — such as Iraq — to make good on their commitments, delegates said. Reeling from an economic crisis, Iraq often flouted its mandated production limits last year in order to shore up government revenue.

The country repeated its readiness to compensate for earlier overproduction, according to a statement released by OPEC after the meeting. Kazakhstan, which has also regularly breached its limits, issued a similar pledge.

Baghdad had often said it will meet its commitments, and pledged a sharp reduction in January to finally atone for breaching its output limit. However, export data showed it once again failed to do so.