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Opec ready for more output cuts

Khaleej Times 2018-12-06 22:28:13

Opec tentatively agreed an output cut but crude fell early on Thursday after Saudi Arabia proposed a moderate reduction as the 15-member group and its allies sought to reach a consensus on a specific deal today in Vienna to prop up plunging prices.

Friday's meeting will hear from non-Opec heavyweight Russia before deciding the exact volumes for a production cut.

Suhail bin Mohammed Faraj Faris Al Mazrouei, UAE Minister of Energy and Industry, dismissed concerns that US pressure could affect Opec's decision on whether to cut oil production. Al Mazrouei, who is Opec's current president, told reporters ahead of the group's meeting on Thursday that "we are not a political organisation."

"We will do what the market requires us to do, and that's how we have been working in the past."

Russian Energy Minister Alexander Novak flew home from Vienna earlier for talks with President Vladimir Putin in St Petersburg. Novak returns to the Austrian capital today for further talks.

"We hope to conclude something by the end of the day tomorrow... we have to get the non-Opec countries on board," Saudi Energy Minister Khalid Al Falih said before the Opec meeting started.

Possible output cuts by Opec and its allies ranged from 0.5-1.5 million bpd, and one million bpd was acceptable, he said.

A cut of about one million barrels a day from the whole group should be adequate and "certainly we don't want to shock the market," said Al Falih.

Brent oil futures fell as much as 5 per cent to below $59 per barrel on fears that there could be no deal but later recovered somewhat, trading down 2 per cent by 1325GMT.

Saudi Arabia, Opec's largest exporter, has made clear that it won't shoulder the burden of trimming production alone.

Al Falih said Opec would fail to reach a deal if no compromise is found with Russia.

The Saudi minister said the kingdom is equally prepared for a deal or no-deal situation.

"If everybody is not willing to join and contribute equally, we will wait until they are."

The group may agree a formal cut of under a million barrels a day, Nigeria's oil minister, Emanuel Kachikwu said in a TV interview on Thursday morning.

Iranian oil minister Bijan Zanganeh said on Thursday he would support a cut as long as Iran did not need to reduce its own output. Iraqi oil minister Thamer Ghadhban said Iraq as Opec's second-largest producer would support and join a cut.

Iranian exports have plummeted after the United States imposed fresh sanctions on Tehran in November. But Washington gave sanctions waivers to some buyers of Iranian crude, further raising fears of an oil glut next year.

"Hopefully Opec will be keeping oil flows as is, not restricted. The world does not want to see, or need, higher oil prices!" Trump wrote in a tweet on Wednesday.

Bob Minter, investment strategist at Aberdeen Standard Investments, said Opec has a really hard job squaring the circle this week. "Qatar leaving the group is one headache, though not that significant. More tricky is how hard a bargain Mr Trump is driving."

"The big unknown is how President Trump will react to any production cuts," said analysts at ING.

Minter said the US has renewed age-old threats to enact a law that would allow them to sue Opec and they are making it very hard to understand the true impact of the renewed sanction on Iran.

"This will make it tricky for Opec to come up with a number on how much supply the world will need next year."

"The lack of clarity on any of these issues will force Opec to hedge their bets by mildly reducing supply and leave the door open to doing more at a later date. The cut will probably be around 500,000 barrels per day, mostly from Russia and Saudi Arabia, with lots of talk of keeping an eye on incoming data. This should help Opec get to a $60-70 price range for Brent and give them room to adjust should supply come in under expectations," said Minter.

Today, the 15-member Opec and its partners will hold discussion to reach a consensus as markets widely expect the alliance to announce steep output reductions from January.

Oil prices have crashed more than 30 per cent over the last two months, ratcheting up the pressure on budgets in oil-exporting countries. Opec daily output stood at 32.99 million barrels in October, according to the International Energy Agency.


Issac John

Associate Business Editor of Khaleej Times, is a well-connected Indian journalist and an economic and financial commentator. He has been in the UAE's mainstream journalism for 35 years, including 23 years with Khaleej Times. A post-graduate in English and graduate in economics, he has won over two dozen awards. Acclaimed for his authentic and insightful analysis of global and regional businesses and economic trends, he is respected for his astute understanding of the local business scene.

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