Wednesday’s meeting of the Joint Ministerial Monitoring Committee (JMMC) of OPEC+, an alliance of OPEC members and 10 other friendly oil-producing nations, was unusually short and unusually sweet.

The upbeat sentiment reflected optimism about the rollout of COVID-19 vaccines in developed countries and the fact that additional vaccines, such as CureVac and Russia’s Sputnik V, are either receiving or being considered for approval. The JMMC expressed optimism that the increasing availability of vaccines bodes well for economic development in the second half of 2021.

This view went hand in hand with the assessment that the global economy would grow more than expected in 2021, which OPEC Secretary General Mohammed Barkindo expressed during a technical meeting on Tuesday.

Immediately after Wednesday’s meeting, oil prices supported the sentiment, reaching levels above $58 per barrel for Brent and above $55 per barrel for WTI. This comes close to highs not seen in a year.

Compliance was good, at 101 percent, including compensatory cuts for previous overproduction by certain countries. The JMMC particularly lauded Nigeria for its efforts to compensate. In that context it was interesting to note that Nigeria’s energy minister, Timipre Sylva, was named a “special envoy” to coordinate compliance by Congo, Equatorial Guinea, Gabon and South Sudan. Iraq and Kazakhstan also issued a statement affirming their commitment to compensating for past overproduction.

So far so good. OPEC+ has done a fine job in helping oil markets to rebalance. Inventories in Organization for Economic Co-operation and Development countries, a key metric through which OPEC gauges the state of the market, have drawn for the fifth consecutive month.

In its January report the Paris-based International Energy Agency observed that global oil stocks fell by an average of 2.58 million barrels per day (bpd) during the fourth quarter. Indeed, earlier on Wednesday the US Energy Information Administration reported a draw of 9.9 million barrels for the week ending Jan. 29, leaving US crude oil inventories 5 percent above the five-year average.

In the longer run, however, the JMMC expressed concern about the unpredictability of the economic recovery as long as the containment of COVID-19 remains uncertain.

This brings us to the psychological undercurrents behind the bullish market sentiment. Last month things looked more uncertain, as country after country increased COVID restrictions or went into lockdown. Toward the middle of January, the conventional wisdom that east of Suez was out of the woods as far as the pandemic was concerned was challenged when Japan proclaimed a state of emergency around the Tokyo area, and China issued regional lockdowns.

Immediately after Wednesday’s meeting, oil prices supported the sentiment, reaching levels above $58 per barrel for Brent and above $55 per barrel for WTI. This comes close to highs not seen in a year.

Cornelia Meyer

The oil markets looked fragile then and if it had not been for Saudi Arabia’s generous, unilateral and one-time cut of 1 million bpd for the months of February and March, we would have seen a more pessimistic market sentiment, including commensurate price action. It was also that cut that kept markets stable as OPEC+ allowed Russia and Kazakhstan to increase production by a collective 75,000 bpd for February and March, while the remaining 20 countries, other than Saudi Arabia, held firm on their December cuts.

The 23 member countries will decide on a trajectory for April during a full ministerial meeting of OPEC+ on March 4. How smooth this meeting will be will depend to a large extent on the success of the vaccination efforts in major economies. It may entail more talks, because the prescribed trajectory of reducing cuts by a further 500,000 bpd will be up for discussion once again.

While things look a lot better than they have in a long time, we should not forget that it is only as a result of the decisive action and historic production cuts agreed by OPEC+ that oil markets recovered from the doldrums last April when WTI briefly went into negative territory.

We can also be certain that markets would have been a lot more jittery if it was not for the unilateral cut by Saudi Arabia in February and March.

• Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources.
Twitter: @MeyerResources