Saudis back mod­est Opec+ oil cut, don’t want to shock mar­ket

Mint ST - - GLOBAL -

Saudis seek to walk a fine line be­tween pre­vent­ing a sur­plus and ap­peas­ing US Pres­i­dent Trump

els for such a pro­posal be­fore po­ten­tially putting it to Rus­sia, the del­e­gate said.

Saudi Ara­bia, Opec’s de facto leader, has made clear that it won’t shoul­der the bur­den of trim­ming pro­duc­tion alone. Its co­op­er­a­tion with Rus­sia shows how much Opec has changed since 2016 when the two coun­tries ended their his­toric an­i­mos­ity and started to man­age the 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 Vi­enna 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. Al-falih said Thurs­day his pref­er­ence was for curbs ex­tend­ing into the third quar­ter.

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

Opec is also 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 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 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+, has 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.

Iran is cur­rently sub­ject to US sanc­tions and as such won’t par­tic­i­pate in any curbs, the coun­try’s oil min­is­ter Bi­jan Zan­ganeh said. Opec min­is­ters are also dis­cussing whether to ex­empt Libya and Venezuela from mak­ing pro­duc­tion cuts, a del­e­gate said Thurs­day. BLOOMBERG

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