OPEC is gearing up to deepen oil supply cuts later this week but still needs to strike an agreement with allies such as Russia on details of a deal to support prices and prevent a glut next year.
The Organization of the Petroleum Exporting Countries (OPEC) meets on Thursday in Vienna followed by a meeting with Russia and others, a grouping known as OPEC+, on Friday.
OPEC+ has curbed supply since 2017 to counter booming output from the United States, which has become the world’s biggest producer.
Next year, rising production in other non-OPEC countries such as Brazil and Norway threaten to add to the glut.
OPEC’s actions in the past have angered U.S. President Donald Trump, who has repeatedly demanded OPEC’s de facto leader Saudi Arabia bring oil prices down if it wants Washington’s to provide Riyadh with military support against arch-rival Iran.
In the past few months Trump has said little on OPEC but that might change later in 2020 if oil and gasoline prices rise - a politically sensitive issue in the United States. Trump will seek re-election in November.
Washington’s ongoing trade dispute with China has also clouded the economic and therefore oil demand outlook for 2020.
OPEC’s second largest oil producer Iraq said on Tuesday Saudi Arabia was supporting deeper cuts for OPEC+ to 1.6 million barrels per day, or 1.6 per cent of global demand, from the current level of 1.2 million bpd.
“My understanding is that they (Saudis) do (prefer it),” Iraqi Oil Minister Thamer Ghadhban said on Tuesday.
On Wednesday, Ghadhban said he would support at least extending existing cuts to end-2020 from March: “We have to give a positive signal to the market and to me at least we should roll-over present agreement”.
Oman’s oil minister Mohammed al-Rumhi said on Wednesday his delegation would recommend extending cuts until the end of 2020.
Saudi Energy Minister Prince Abdulaziz bin Salman declined to comment on policy matters upon arrival in Vienna.
“It will be easy,” said Venezuelan Oil Minister Manuel Quevedo when asked about prospects for the talks, adding that a rollover of the current deal was likely.
DEEPER CUTS AND COMPLIANCE
Saudi Arabia needs higher oil prices to support its budget revenue and the pending share sale of state-owned oil giant Saudi Aramco with pricing of its initial public offering (IPO) expected on Thursday.
OPEC’s actions have supported oil prices at around $50-$75 per barrel over the past year. Brent crude futures were up by around 3 per cent near $63 per barrel on Wednesday.
OPEC sources have also said Riyadh was pressing fellow members Iraq and Nigeria to improve their compliance with quotas, which could provide an additional reduction of up to 400,000 bpd. The total effective cuts would then amount to around 2 million bpd, or 2 per cent of global supply.
“The outlook will be bleak if OPEC+ fails to agree on additional cuts,” said Rystad Energy adding the market will face an oversupply to the tune of 0.8 million bpd in the first half of 2020 without fresh cuts.
Not all OPEC members were convinced of the need to cut deeper. One OPEC delegate said the move would boost prices and spur yet more production from the United States.
Non-OPEC Russia has yet to agree to extend or deepen cuts from its current pledge of 228,000 bpd as its companies are arguing they are finding it tough to reduce output during winter months due to very low temperatures.
Russian Energy Minister Alexander Novak said on Tuesday that Moscow had yet to finalise its position: “Let’s wait ...But I think the meeting, as usual, will be of a constructive nature.”
A source familiar with the Russian thinking told Reuters that Moscow would likely reach a consensus with OPEC this week and just needed to iron out a few outstanding issues.
One sticking point for Russia is how its output is measured. Russia includes gas condensate in production figures, while other producers do not.