Credit - Bloomberg
OPEC meets in Vienna on the verge of an oil production cut that would defy US President Donald Trump’s plea to keep the taps open.
Thursday 06, December 2018
(bloomberg)--Yet the group still lacks an agreement on crucial details that could convince traders they’re serious about preventing an oversupply next year and boosting prices.
A day of talks in the Austrian capital on Wednesday concluded with a panel led by Saudi Arabia and Russia—the group’s most powerful members—recommending an output reduction lasting six months, Oman’s Oil Minister Mohammed Al Rumhy told reporters. But they didn’t discuss how big any cuts should be, he said.
The group could eventually agree to remove about one million barrels a day, about one per cent of global output, from the market, Al Rumhy said. A delegate from another country said some members believe a smaller reduction would be adequate. The oil market reacted negatively, dropping 52 cents to $61.56 a barrel in London.
The Organization of Petroleum Exporting Countries and its allies are desperate to shore up oil prices after a slump of more than $20 a barrel since October. But they’re contending with vociferous opposition from the US president, who’s taken to using his Twitter account to berate the group’s policies and sees low oil prices as key to sustaining America’s economic growth.
While ministers met in OPEC’s Vienna headquarters, Trump tweeted that the “world does not want to see, or need, higher oil prices!”
Ministers from the core OPEC group, which doesn’t include Russia, will meet on Thursday to seek a consensus on exactly who will cut and by how much. While Saudi Arabia, the group’s biggest producer, will shoulder most of the burden, the kingdom wants commitments from other countries before completing a final deal.
“I’m cautiously optimistic that a deal gets done, but the devil will be in the detail,” said Mohammad Darwazah, a director at Medley Global Advisers. “How OPEC communicates this to the market may be just as important as what gets done.”
Although Russia, the largest producer in the wider group known as OPEC+, agreed to a cut in principle, the eventual size of their contribution remains undefined and will be key to putting together the final deal.
In private conversations earlier this week, OPEC delegates said that Saudi Arabia had favoured a Russian cut of about 300,000 barrels a day, but Moscow was seeking a smaller reduction of about 150,000, said people familiar with those talks. Those differences persisted after Wednesday’s meeting, OPEC delegates said.
Russia’s second-largest oil producer, Lukoil PJSC, is ready to comply with any request from the Kremlin but hopes output cuts won’t be necessary, said Chief Executive Officer Vagit Alekperov.
“I hope that maybe these measures won’t be necessary,” he said in an interview with Bloomberg television in Vienna. An oil price around $60 suits the needs of producers and consumers and it should remain at that level in January, he said. If Russia does agree a cut, it would take three to four months to fully implement it, he said.
Iran is currently subject to US sanctions and as such won’t participate in any curbs, the country’s OPEC governor Hossein Kazempour Ardebili said this week. Libya and Nigeria, which were exempt from making cuts in the 2016 deal that created the OPEC+ group, have accepted that they will have to participate this time, said Al Rumhy.
The last time the OPEC+ group agreed to curtail output, in late 2016, it settled on a combined 1.8 million-barrel-a-day reduction. In preparatory meetings ahead of this week’s summit, delegates had said a cut of as much as 1.3 million barrels a day next year is needed as demand growth slows and US shale production surges.
Resolving the group’s internal differences and convincing a sceptical oil market that they’re serious about preventing a new supply glut in 2019 would require ministers to conclude weeks of debate and settle on a final figure.
“Nobody wants to mention a number, because it means you’re committing yourself to how much you’re going to cut,” said Al Rumhy. “Especially the big boys—they would want to keep this cut very close to their heart.”