OPEC-only talks end with­out oil-cuts deal

Mar­ket left dan­gling in un­cer­tainty be­fore ex­ter­nal al­lies join dis­cus­sions Fri­day

The Daily Star (Lebanon) - - BUSINESS - By Grant Smith, Nayla Raz­zouk and Gol­nar Mote­valli

OPEC ended talks in Vi­enna with­out a deal on oil pro­duc­tion cuts, with the size of Rus­sia’s con­tri­bu­tion re­main­ing a stick­ing point be­fore fur­ther talks Fri­day.

Saudi En­ergy Min­is­ter Khalid alFalih said he wasn’t con­fi­dent of an agree­ment after dis­cus­sions of a 1 mil­lion bar­rel a day out­put re­duc­tion con­cluded with­out an agree­ment. That left the oil mar­ket dan­gling in un­cer­tainty be­fore nonOPEC al­lies join the group for a sec­ond day of talks Fri­day.

Ear­lier Thurs­day, min­is­ters were dis­cussing a pro­posal to curb their oil out­put by about 1 mil­lion bar­rels a day, which would go a lit­tle fur­ther than Saudi Ara­bia’s pref­er­ence for a moder­ate re­duc­tion that wouldn’t shock the mar­ket.

Del­e­gates said de­tails of how to share that out and the ex­tent of the con­tri­bu­tion from non-OPEC al­lies re­mained un­re­solved.

The group is un­der pres­sure after a col­lapse in oil prices last month.

Saudi Ara­bia, the largest pro­ducer in the car­tel, is seek­ing to walk a fine line be­tween pre­vent­ing a sur­plus and ap­peas­ing U.S. Pres­i­dent Don­ald Trump. Achiev­ing that bal­ance was prov­ing elu­sive, with one del­e­gate pre­dict­ing that the size of out­put cuts would re­main un­re­solved un­til Fri­day, when al­lies in­clud­ing Rus­sia join the talks.

Oil in Lon­don tum­bled as much as 5.2 per­cent to $58.36 a bar­rel, be­fore par­ing losses to $59.34 at 5:07 p.m. lo­cal time.


In one pro­posal be­ing con­sid­ered at talks Thurs­day, OPEC could cut its own out­put by 900,000 to 1 mil­lion bar­rels a day and then seek fur­ther curbs from non-OPEC part­ners, one del­e­gate said, ask­ing not to be iden­ti­fied as an agree­ment hasn’t yet been reached.

Min­is­ters are study­ing par­tic­i­pa­tion lev­els for such a pro­posal be­fore po­ten­tially putting it to key ally Rus­sia, the del­e­gate said.

That would be a more bullish out­come than Falih had hinted at early in the day, when he said a re­duc­tion of about 1 mil­lion bar­rels a day from the en­tire OPEC+ coali­tion should be ad­e­quate and “cer­tainly we don’t want to shock the mar­ket.”

The sum­mit in Vi­enna wasn’t the only story Thurs­day. As min­is­ters sat down at the head­quar­ters of the Or­ga­ni­za­tion of the Pe­tro­leum Ex­port­ing Coun­tries, Rus­sian Oil Min­is­ter Alexan­der No­vak flew to St. Peters­burg to meet Pres­i­dent Vladimir Putin to de­cide on their coun­try’s con­tri­bu­tion. If the group’s most im­por­tant ally in the OPEC+ al­liance de­cides to make a siz­able cut, the car­tel would fol­low up.


Be­fore the six hours of dis­cus­sions in the Aus­trian cap­i­tal Thurs­day, Falih had said that “if ev­ery­body is not will­ing to join and con­trib­ute equally, we will wait un­til they are.”

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 pro­duc­tion­cuts 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.

Al­though Rus­sia, the largest pro­ducer in the OPEC+ group, has agreed to a cut in prin­ci­ple, the even­tual size of its 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, peo­ple fa­mil­iar with those talks said.

“The im­pres­sion that the group can’t re­ally come to a de­ci­sion with­out first check­ing with Moscow is go­ing to be dif­fi­cult for some mem­bers to swal­low,” said Derek Brower, a di­rec­tor at con­sul­tant RS En­ergy Group. “The mar­ket won’t care if to­mor­row they man­age a siz­able cut with proper met­rics, but that’s still a big if.”

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 U.S. eco­nomic growth.

While min­is­ters met in OPEC’s Vi­enna head­quar­ters Wed­nes­day, Trump tweeted that the “world does not want to see, or need, higher oil prices!”


Iran is cur­rently sub­ject to U.S. sanc­tions and as such won’t par­tic­i­pate in any curbs, the coun­try’s Oil Min­is­ter Bi­jan Zan­ganeh said.

Whether to ex­empt Iran from mak­ing any cuts was one stick­ing point in the meet­ing, a del­e­gate said. OPEC min­is­ters are also dis­cussing whether to ex­empt Libya and Venezuela from mak­ing pro­duc­tion cuts, an­other del­e­gate 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 cut. 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, Nige­rian Oil Min­is­ter Em­manuel Kachikwu said in a Bloomberg tele­vi­sion in­ter­view Thurs­day morn­ing.

Be­fore the talks, Falih had said that “if ev­ery­body is not will­ing to join and con­trib­ute equally, we will wait un­til they are.”

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