Opec, partners mull 1.4m bpd supply cut

RUSSIA MIGHT NEED PERSUADING TO BACK SUCH A MOVE

Opec and its partners are discussing a proposal to cut oil output by up to 1.4 million barrels per day (bpd) for 2019, three sources familiar with the issue said, a larger reduction than previously thought to avert a price-sapping oversupply.

Worried by a drop in oil prices due to record supply from Saudi Arabia, Russia and the United States, the Organization of the Petroleum Exporting Countries is talking of a U-turn just months after increasing production.

Such a shift could anger US President Donald Trump, who urged Opec on Monday not to cut supply. It also risks handing market share to the United States, while the sources said Russia might need persuading to back such a move.

A steep slide in oil prices has surprised many oil market participants. Brent crude has fallen from a four-year high of $86 a barrel in early October to $66 yesterday. Just weeks ago, some trading firms were talking of $100 oil.

The sources, who declined to be identified by name as the talks are confidential, said a cut of up to 1.4 million bpd The UAE energy minister said yesterday Opec and its allies will need to reduce oil production next year to prevent a build-up in supply and there is consensus building among its members to support a decision to balance the market.

“We have seen the risk of an increase in inventories if we didn’t do anything and we will not allow that to happen,” Suhail Al Mazroui, who holds the Opec presidency, said. “Obviously there will be a requirement to move from increasing production to reducing production.” Al Mazroui also said the UAE would support any Opec decision to balance the market in December. was one option discussed by energy ministers from Saudi Arabia, non-Opec Russia and other nations in Abu Dhabi on Sunday. “I believe a cut of 1.4 million bpd is more reasonable than above it or below it,” one of the sources said.

Opec and a group of nonOpec nations, led by Russia, have been cooperating to limit oil supply since the start of 2017. They partially unwound their reduction in June after pressure from Trump to lower prices.

The Opec-led deal got rid of a supply glut that built up in 2014 as supply from the United States and other countries outside the group soared. The then Saudi Oil Minister Ali Al Naimi blocked an Opec supply cut to preserve market share.

This time, Saudi Energy Minister Khalid Al Falih has publicly spoken of a need to lower supplies, showing price support is trumping market share. Opec meets on December 6 to set policy for 2019.

A new round of Opec-led supply cuts in 2019 would further support US shale oil production, potentially repeating the cycle that played out in 2014. Opec and its partners have not settled on a final figure for a new supply cut, the sources said.

One of the three sources said a minimum cut of 1 million bpd was being considered and it could be larger than 1.4 million bpd. Another source, an Opec delegate, agreed that a larger cut than 1.4 million bpd was possible, depending on the market.