OPEC Faces Tough Meeting as Russia Hesitates on Duration of Output Curbs
Ejiofor Alike The meeting of the Organisation of Petroleum Exporting Countries (OPEC) scheduled with non-OPEC members tomorrow may be tougher than expected as the cartel’s leader, Saudi Arabia, pushes to extend oil output cuts by nine months, while non-member, Russia, is hesitating on the curbs’ duration due to worries that the market could overheat.
OPEC led by Saudi Arabia and non-OPEC led by Russia will meet in Vienna, Austria, next Thursday to discuss possible extension of the output cuts but the efforts to extend a deal into late 2018 may be complicated by internal divisions among major parties to the agreement.
Russia is less reliant on higher oil prices and has typically been keen not to support higher prices so as not to concede too much market share to its rivals.
Also, with new oil fields set to come online next year, a number of Russian firms have expressed their displeasure over a possible extension of global supply curb.
Russia said it was ready to support extending the outputcutting deal but had still to decide on the duration.
Reuters had reported that a major Russian production project led by ExxonMobil was preparing to ramp up output by a quarter from next year.
The project is not subject to the global output-cutting deal but the development would signal an obstacle to Russia’s efforts on production curtailment.
The Exxon project involves Rosneft, the Kremlin-owned state producer whose boss, Igor Sechin, a close ally of President Vladimir Putin, has long been a critic of Moscow’s deal with the 14-country OPEC.
Sources close to talks between OPEC and Russia told Reuters Moscow wanted to fine-tune the language of the deal to include an option to review the agreement if global stocks fell steeply.
“It (tomorrow’s meeting) will not be an easy meeting and we always look at various scenarios,” United Arab Emirates Energy Minister, Suhail bin Mohammed alMazroui, said yesterday in Dubai before leaving for the OPEC gathering in Vienna.
The OPEC, Russia and nine other producers are cutting oil output by about 1.8 million barrels per day until March 2018, and next Thursday will discuss extending the deal.
The market had largely expected OPEC to prolong cuts until the end of 2018 but doubts have emerged in the last few days.
Saudi Arabia has signalled that it wants oil to trade at about $60 a barrel as the kingdom prepares to list shares in national oil champion Aramco and is fighting a large fiscal deficit.
The Russian Government also wants high oil prices ahead of a presidential election in March 2018. But officials in Moscow have voiced worries about pricier oil boosting the rouble, which could undermine the competitiveness of Russia’s economy.
As oil rallied above $60 per barrel, United State producers aggressively hedged their future production, raising fears of another spike in shale output in the US which is not participating in the global production curbs.
The supply pact is aimed at reducing oil stocks in industrialised countries to their five-year average. The latest figures suggest OPEC is more than halfway there, with OPEC sources saying the target could be reached after June 2018.
Head of the International Energy Agency (IEA), Fatih Birol, which advises industrialised nations on energy policy, told Reuters that he expected the market to tighten towards the second half of 2018 due to robust demand.