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OPEC+ was discussing a proposal to gradually ease its oil-output cuts next year, seeking to resolve divisions that emerged at the core of the cartel over several days of fractious negotiations.
Talks were focused on a proposal for the cartel to add 500,000 barrels a day to the market in January, potentially to be followed by similar-sized supply hikes in subsequent months, delegates said. That would modify the current deal, which allows supply to jump by 1.9 million barrels a day from Jan. 1.
Ministers were inching toward a deal, they said, but there were signs that challenges remained. Thursday’s meeting, which had already been postponed by two days to allow more time for talks, started almost two hours late. Saudi Energy Minister Prince Abdulaziz bin Salman didn’t chair the session as usual, leaving Russian Deputy Prime Minister Alexander Novak to lead the proceedings alone, delegates said.
“We understand that all eyes are on us today,” Novak said in his opening speech. “I am more than sure we will take a well-grounded, balanced decision.”
A gradual easing of the supply cuts would fall short of what had been widely expected before this week: a full three-month delay to the 1.9 million barrel-a-day output increase scheduled for January. Yet the proposal would also avoid a full breakdown of OPEC+ unity, which had become a growing risk after days of tense talks exposed a rift between core cartel members, the United Arab Emirates and Saudi Arabia.
The proposals, if accepted by all of the Organization of Petroleum Exporting Countries and its allies, would tweak the historic cuts agreement that has underpinned the recovery in oil prices this year. A deal would bring an end to a tense round of talks that has tested the unity, and credibility, of OPEC+.
“Ministers are inching closer to a compromise that should break the impasse,” Energy Aspects Ltd. co-founder Amrita Sen said in a note before the meeting started. “OPEC+ officials are debating a more limited adjustment to the current deal than the proposed three-month delay.”
Russian Position
Importantly, the deal is likely to keep the oil market in deficit throughout the first quarter, allowing OPEC to drain bloated inventories. If the group had gone ahead with the full 1.9 million barrels a day increase on Jan. 1, the cartel’s economists calculated that the market would have flipped into surplus.
A gentler tapering of the cuts could offer a potential compromise after days of talks, offering something to members that are concerned about the fragility of the market amid a second wave of the virus, and also to nations that are impatient to raise production.
OPEC+ rescued the oil market this year from an unprecedented slump, slashing production as the pandemic crushed demand. While crude has surged in recent weeks, a new wave of virus infections is hitting the global economy.
Fractious talks earlier this week raised the specter of the deal falling apart, which would sink prices and batter an industry that spans from tiny nations like Gabon to corporate giants such as Exxon Mobil Corp.
The intensity of the fight between Saudi Arabia and the UAE took OPEC-watchers by surprise, as the pair have long been staunch allies. But Abu Dhabi has been pursuing a more independent oil policy and wants to pump more.
Over the summer, Abu Dhabi’s impatience led it to casting aside its usual obedience to cartel discipline, and pump more crude than its quota allowed. The Saudis were furious, and summoned UAE Energy Minister Suhail Al-Mazrouei to Riyadh for a public dressing down.
While the UAE subsequently atoned, people familiar with its oil policy say Abu Dhabi believes the current quota is unfair, and is keen to make the most of massive investments in production capacity. It’s also planning a new regional price benchmark based around its Murban crude variety, which needs the kind of volumes that clash with production limits.
