OPEC waits on Vladimir Putin's decision as it searches for oil cut deal
OPEC meets on Thursday with the cartel seemingly willing to defy U.S. President Donald Trump and cut oil production — but the most important decision maker will spend the day a thousand miles away. As OPEC ministers sit down at their Vienna headquarters, Russian Oil Minister Alexander Novak plans to fly to St. Petersburg to meet President Vladimir Putin to decide on their country’s contribution. Once the group’s most important ally in the broader OPEC+ coalition decides how much it’s ready to cut, the cartel will follow up.
“We face stiff resistance from Russia for a large cut,” said a senior OPEC delegate, asking not to be identified because discussions are private.
Saudi Arabia, OPEC’s de facto leader, has made clear that it won’t shoulder the burden of trimming production alone. In private conversations, delegates said a consensus was emerging around an overall cut, including Russia, of around 1 million barrels a day, although all cautioned the figure wasn’t final.
Also read| Crude oil prices dip as stock markets slide, but trading tepid ahead of OPEC meeting
The wait for Moscow signals how much OPEC has changed since 2016 when Saudi Arabia and Russia ended their historic animosity and started to manage the oil market together. The alliance has transformed OPEC into a duopoly in which Russia, which isn’t a formal member of the cartel but part of the production cuts alliance, is asserting its power.
While Middle Eastern producers are desperate to reverse the recent slump in prices to pay for government spending, sensitivities are different in Russia, where the government is running a budget surplus and a weak ruble mitigates the impact of lower prices. The government is concerned about the impact of higher prices on Russian consumers, stoking discontent with economic policy, according to one Kremlin official.
A day of preliminary talks in the Austrian capital on Wednesday concluded with a panel led by Saudi Arabia and Russia recommending an output reduction lasting six months, but the committee didn’t discuss how big any cuts should be.
The group may agree a formal cut of under a million barrels a day, Nigeria’s oil minister, Emanuel Kachiwku said in a TV interview on Thursday morning.
Oil prices fell slightly on Thursday in London, trading at just under $62 a barrel. OPEC is also contending with vociferous opposition from the U.S. 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 on Wednesday, Trump tweeted that the “world does not want to see, or need, higher oil prices!”
“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 favored 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 U.S. sanctions and as such won’t participate in any curbs, the country’s oil minister, Binjan Zanganeh said.
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 U.S. shale production surges.
Resolving the group’s internal differences and convincing a skeptical 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.
“Some countries will struggle because their economies are very constrained” and Nigeria itself could only manage a small cut, Kachikwu said.
Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.