Opec goes back into crunch talks as Rus­sia re­sists big oil cut

The Star Malaysia - StarBiz - - Foreign Features - By JAVIER BLAS, SALMA EL WAR­DANY and ELENA MAZNEVA

OPEC pre­pared for a fur­ther day of talks on oil-pro­duc­tion curbs af­ter a sum­mit on Thurs­day ended with no deal, as Rus­sia re­sisted the big out­put cut that Saudi Ara­bia was de­mand­ing.

Af­ter a six-hour meet­ing in Vi­enna, Saudi En­ergy Min­is­ter Khalid Al-Falih said he wasn’t con­fi­dent of an agree­ment when the Or­gan­i­sa­tion of Pe­tro­leum Ex­port­ing Coun­tries met its al­lies yes­ter­day. A pro­posal for a com­bined Opec and non-Opec cut of one mil­lion bar­rels a day was left dan­gling in uncer­tainty.

“Not every­body is ready to cut equally,” Al-Falih told re­porters in Vi­enna. “Rus­sia is not ready for a sub­stan­tial cut.” An­other stick­ing point in the talks was Iran’s con­tri­bu­tion, a del­e­gate said. The Per­sian Gulf na­tion is cur­rently sub­ject to US sanc­tions and as such won’t par­tic­i­pate in any curbs, Oil Min­is­ter Bi­jan Zan­ganeh said.

Other mem­bers said it should par­tic­i­pate, ac­cord­ing to a del­e­gate.

The fail­ure to se­cure a deal so far is the lat­est ex­am­ple of how Opec is un­der pres­sure from forces that are re-draw­ing the global oil map, leav­ing it in­creas­ingly de­pen­dent on the sup­port of non-mem­ber Rus­sia. In a strik­ing de­vel­op­ment, the US gov­ern­ment re­vealed that it turned into a net ex­porter of pe­tro­leum for the first time in 75 years last week thanks to the shale boom.

The oil mar­ket re­acted neg­a­tively to Opec’s set­back, with Brent crude slid­ing 2.4% to US$60.06 a bar­rel in Lon­don on Thurs­day. Prices ex­tended de­clines yes­ter­day.

Rus­sia, which ini­tially sought a 100,000 to 150,000-bar­rel-a-day re­duc­tion as part of a new deal, may agree to a slightly larger cut de­pend­ing on Opec’s de­ci­sion on its own out­put, a del­e­gate said. Moscow in­sists its cut should be grad­ual and re­con­sid­ered af­ter the first quar­ter since the mar­ket may shift, the del­e­gate said, ask­ing not to be iden­ti­fied dis­cussing pri­vate de­lib­er­a­tions.

Oil’s du­op­oly

Much has changed for Opec since 2016, when Rus­sia and Saudi Ara­bia ended their his­toric an­i­mos­ity and started to man­age the mar­ket to­gether. The al­liance has trans­formed the car­tel into a du­op­oly in which the Krem­lin is as­sert­ing its power.

As min­is­ters sat down at Opec head­quar­ters on Thurs­day, Rus­sian En­ergy 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 part­ner in the so-called Opec+ al­liance de­cides to make a siz­able cut, the car­tel would fol­low up.

“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.”

Elu­sive agree­ment

Ear­lier Thurs­day, min­is­ters were dis­cussing a pro­posal to curb com­bined Opec and non-Opec out­put by about one mil­lion bar­rels a day, a del­e­gate said. That was in line with the Saudi min­is­ter’s pref­er­ence for a mod­er­ate re­duc­tion that wouldn’t “shock the mar­ket.” The king­dom is un­der eco­nomic pres­sure af­ter a col­lapse in oil prices last month, yet it’s seek­ing to walk a fine line be­tween pre­vent­ing a sur­plus next year and ap­peas­ing Pres­i­dent Don­ald Trump.

While Mid­dle Eastern pro­duc­ers need high oil rev­enues to pay for gov­ern­ment spend­ing, sen­si­tiv­i­ties are dif­fer­ent in Rus­sia, which is run­ning a bud­get sur­plus and ben­e­fits from a weak ru­ble that mit­i­gates the ef­fect of lower crude prices in dol­lars. The gov­ern­ment is con­cerned about the im­pact of higher prices on con­sumers, stok­ing dis­con­tent with eco­nomic pol­icy, ac­cord­ing to one Krem­lin of­fi­cial.

Rus­sia’s con­tri­bu­tion

The size of Rus­sia’s con­tri­bu­tion to any OPec+ curbs has re­mained un­de­fined through this week’s talks in Vi­enna.

In pri­vate con­ver­sa­tions ear­lier in the week, del­e­gates said that Saudi Ara­bia had favoured a Rus­sian cut of about 300,000 bar­rels a day.

Opec min­is­ters were also dis­cussing whether to ex­empt Libya and Venezuela from mak­ing cuts, an­other del­e­gate said. Those coun­tries, along with Nige­ria, were op­posed to par­tic­i­pat­ing in a sup­ply re­duc­tion, the del­e­gate said.

Be­fore Thurs­day’s meet­ing, Al-Falih said that “if every­body is not will­ing to join and con­trib­ute equally, we will wait un­til they are” and he was pre­pared for the con­se­quences of no deal.

“Some coun­tries will strug­gle be­cause their economies are very con­strained” and Nige­ria it­self could only man­age a small cut, Min­is­ter of State for Pe­tro­leum Re­sources Em­manuel Kachikwu said in a Bloomberg tele­vi­sion in­ter­view be­fore the meet­ing.

Be­yond its in­ter­nal dis­putes, 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 on Wed­nes­day, Trump tweeted that the “world does not want to see, or need, higher oil prices!”

Thurs­day’s in­con­clu­sive talks could end up giv­ing the pres­i­dent what he wants.

Opec will first re­con­vene yes­ter­day without out­side part­ners in Vi­enna, then in the af­ter­noon the group meets with its non-Opec al­lies, in­clud­ing Rus­sia, a del­e­gate said.

“The risk of Opec+ not be­ing able to agree on a deal was al­ways very high and this will now pres­surise prices sig­nif­i­cantly lower,” said Am­rita Sen, chief oil an­a­lyst at con­sul­tant En­ergy As­pects Ltd.

“There is no an­chor for the mar­ket.” — Bloomberg

— Reuters

Al-Falih: Rus­sia is not ready for a sub­stan­tial cut.

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