Major oil producers seeking to boost output will meet on Sunday, OPEC said, after negotiations earlier this month became deadlocked over plans to gradually ease production cuts.
The OPEC+ grouping, which includes Saudi Arabia and Russia, will meet via videoconference at 1000 GMT on Sunday, the Vienna-based OPEC Secretariat said in a statement.
The group’s 23 members cancelled a meeting on July 5 that was supposed to overcome an impasse over crude output levels.
Since May, the group has raised oil output bit by bit, after slashing it more than a year ago when the coronavirus pandemic crushed demand.
At stake is a proposal that would see the world’s leading oil producers raise output by 400,000 barrels per day (bpd) each month from August to December.
That would add two million bpd to markets by the end of the year, helping to fuel a global economic recovery as the coronavirus pandemic eases.
A further proposal seeks to extend a deadline on capping output from April 2022 to the end of 2022.
But holding out against the new deal was the United Arab Emirates, which criticised the terms of the extension as unjust.
Oil prices, which had already been sliding owing to concerns about the global economy, plummeted in April 2020 as coronavirus spread around the world and battered global consumption, transport and supply chains.
OPEC+ decided to withdraw 9.7 million bpd from the market and to gradually restore supplies by the end of April 2022. Benchmark oil prices rebounded as a result.
The members of the OPEC group of oil producers will meet with their allies Thursday to see if they can reach an accord on extending production cuts over the coming months.
The video-conference meeting was pushed back from Tuesday and comes after three days of inconclusive discussions among the 13 members of OPEC proper.
Observers say the postponement points to an agreement being harder to reach than initially thought.
The meeting was originally scheduled for 1300 GMT but the start was delayed by an hour.
The first wave of the coronavirus pandemic sent oil demand — and prices — plummeting in the spring, with the benchmark American contract even going into negative territory for the first time in history.
After tough negotiations in April, OPEC+ — which includes Russia — agreed on drastic production cuts in order to try to put a floor under oil prices.
Despite hitting producers’ revenues hard, those cuts did help drag prices back up again.
However, the second wave of the pandemic has dashed hopes of a rapid “V-shaped” recovery for the economy and for oil demand.
Most producers, including OPEC kingpin Saudi Arabia, therefore favour an extension of the current agreement, which entails a cut of 7.7 million barrels per day (bpd) and was scheduled to be eased to 5.8 million bpd on January 1.
“OPEC and allies are said to be leaning towards a rollover of current cuts with a gradual increase in output,” according to analyst Neil Wilson from Markets.com.
“Whether the easing would begin in January or after the three-month delay discussed before the meeting is unclear,” wrote Stephen Innes of Axi.
After rising on Wednesday on hopes of a deal and after the UK’s approval of a coronavirus vaccine, prices for both the US crude oil benchmark West Texas Intermediate (WTI) and Europe’s Brent North Sea were down slightly on Thursday at $45.13 and $48.15 respectively.
– Thorny subjects –
Markets were expecting producers to be able to agree on an extension of three to six months, with many viewing Monday’s meeting as a formality to sign it off.
But a recent surge in crude prices — up by 25 percent over the course of November — together with positive news from several companies on coronavirus vaccines means some countries may need more convincing of the need for further sacrifices.
Meanwhile, the perennially thorny subject of whether all members are respecting production quotas laid down in previous agreements seems to once again be on the table.
Some insist that those who are currently overproducing be made to comply before further restrictions are imposed.
“It is unlikely that the strict implementation of the agreed cuts… will be achieved, which will undermine their effectiveness and confidence in the group,” according to Eugen Weinberg of Commerzbank.
The cartel will also have to pay attention to developments in the three members which have been granted exemptions from quotas — Libya, Iran and Venezuela.
Libya’s production had been almost wiped out by civil conflict but has spiked since October and now stands at over one million bpd, according to the country’s National Oil Corporation (NOC).
In the longer term, Iran’s offer on the oil market may also increase if the incoming US administration pursues a policy of detente with Tehran and relaxes sanctions.
That would lead hundreds of thousands of barrels coming on to the market, exerting a fresh downward pressure on prices.
Top oil producers will consider fresh output cuts at a meeting this week, but analysts are doubtful they will succeed in bolstering crude prices dented by the US-China trade war.
The OPEC petroleum exporters’ cartel and key non-OPEC members want to halt a slide in prices that has continued despite previous production cuts and US sanctions that have squeezed supply from Iran and Venezuela.
Analysts say the OPEC+ group’s Joint Ministerial Monitoring Committee, which monitors a supply cut deal reached last year, has limited options when it meets in Abu Dhabi on Thursday.
UAE Energy Minister Suheil al-Mazrouei said on Sunday the group would do “whatever necessary” to rebalance the crude market, but admitted that the issue was not entirely in the hands of the world’s top producers.
Speaking at a press conference in Abu Dhabi ahead of the World Energy Congress, to start Monday, he said the oil market is no longer governed by supply and demand but is being influenced more by US-China trade tensions and geopolitical factors.
The minister said that although further cuts will be considered at Thursday’s meeting, they may not be the best way to boost declining prices.
“Anything that the group sees that will balance the market, we are committed to discuss it and hopefully go and do whatever necessary,” he said.
“But I wouldn’t suggest to jump to cuts every time that we have an issue on trade tensions.”
While cuts could help prices, they could also mean producers lose further market share, analysts say.
“OPEC has traditionally resorted to production cuts in order to shore up the prices,” said M. R. Raghu, head of research at Kuwait Financial Centre (Markaz).
“However, this has come at the cost of reduction in OPEC’s global crude market share from a peak of 35 percent in 2012 to 30 percent as of July 2019,” he told AFP.
The 24-nation OPEC+ group, dominated by the cartel’s kingpin Saudi Arabia and non-OPEC production giant Russia, agreed to reduce output in December 2018.
That came as a faltering global economy and a boom in US shale oil threatened to create a global glut in supply.
Previous supply cuts have mostly succeeded in bolstering prices.
But this time, the market has continued to slide — even after OPEC+ agreed in June to extend by nine months an earlier deal slashing output by 1.2 million barrels per day (bpd).
The new factor is the trade dispute between the world’s two biggest economies, whose tit-for-tat tariffs have created fears of a global recession that will undermine demand for oil.
Saudi economist Fadhl al-Bouenain said the oil market has become “highly sensitive to the US-China trade war”.
“What is happening to oil prices is outside the control of OPEC and certainly stronger than its capability,” Bouenain told AFP.
“Accordingly, I think OPEC+ will not resort to new production cuts” because that would further blunt the group’s already shrunken market share, he said.
European benchmark Brent was selling at $61.54 per barrel Friday, in contrast with more than $75 this time last year but up from around $50 at the end of December 2018.
The deliberations also coincide with stymied production from Iran and Venezuela and slower growth in US output, meaning that supplies are not excessively high.
“US shale output growth does not have the same momentum as in previous cycles, and OPEC production is at a 15-year low, having fallen by 2.7 million barrels per day over the past nine months,” Standard Chartered said in a commentary last month.
“We think that the oil policy options for key producers are limited, for the moment,” the investment bank said.
No decisions will be taken at Thursday’s meeting, but it should produce recommendations ahead of an OPEC+ ministerial meeting in Vienna in December.
Rapidan Energy Group said the alliance might need to cut output by an additional one million bpd to stabilise the market.
But the problem will be deciding which member countries will shoulder the burden of any new cuts.
Saudi Arabia, which is the de facto leader of OPEC and pumps about a third of the cartel’s oil, took on more than its fair share last time around.
It has also undergone a major shake-up in its oil sector, announcing the replacement of energy minister Khalid al-Falih with Prince Abdulaziz bin Salman in the early hours of Sunday morning ahead of a much-anticipated stock listing of state oil giant Aramco.
Bouenain said he believes that Riyadh is likely to resist taking on further cuts, given the impact on the kingdom’s revenues.
Raghu said that “without a favourable resolution to the dispute, OPEC’s production cuts will not result in a sizeable uptick of oil prices.”