Ejiofor Alike with agency reports
The Organisation of Petroleum Exporting Countries (OPEC) and its allies are likely to extend existing oil output cuts when they meet next month until mid-2020, as non-OPEC oil producer, Russia backs Saudi Arabia’s push for stable oil prices amid the listing of state-owned oil giant, Saudi Aramco.
OPEC will meet on December 5 at its headquarters in Vienna, Austria followed by talks with a group of other oil producers, led by Russia, known as OPEC+.
Saudi Arabia is set to announce the final pricing of the initial public offering of Aramco on December 5, in what it hopes will be the world’s largest Initial Public Offer (IPO).
The oil price at the time is likely to be key to Aramco’s listing, expected around mid-December.
Russian President Vladimir Putin set the tone for the December meeting last week, calling Saudi Arabia’s position ahead of the talks “tough”.
Moscow argued that it will find it hard to cut oil production voluntarily during the cold winter months, especially in western Siberia, where Russia produces two-thirds of its oil and where most of its well rigs are located.
Freezing temperatures make it difficult for Russia to shut in and restart wells in winter months.
“There is no doubt that Russia won’t let the Saudis down in case of a price collapse, given the upcoming IPO,” one source familiar with Russian thinking told Reuters.
He added that Putin had developed close ties with Saudi Crown Prince Mohammed bin Salman and the Russian government was aware that the three-year-old partnership could fall apart if Russia did not support Riyadh.
The OPEC+ alliance has since January implemented a deal to cut output by 1.2 million barrels per day, to help boost oil prices trading now at $62 a barrel.
“This is not only about supporting Saudi Arabia. The deal, without a doubt, is beneficial for Russia. The Russian budget has received more than $100 billion from the deal. And the deal has stabilised the Russian economy,” the head of Russia’s Direct Investment Fund, Kirill Dmitriev, told Reuters.
Dmitriev and Energy Minister Alexander Novak were the key architects of a deal with Saudi Arabia, which began in 2017.
Saudi Arabia and other Gulf producers in OPEC have been delivering more than their share of promised cuts to stabilise the market and prevent prices from falling.
In October, the kingdom raised its oil output to its OPEC target, pumping 10.3 million bpd to replenish its inventories after attacks on its facilities last month, but kept the volumes of crude supplied to the market at 9.9 million bpd.
Last week, OPEC Secretary-General, Mohammad Barkindo said US shale oil supply growth could slow next year while demand may have upside potential, appearing to downplay any need to cut output more deeply.
The current oil supply cuts run through to March 2020.
Reuters quoted OPEC source as saying that the cartel will likely extend the supply cut until middle of 2020.
“So, far we have two main scenarios: either meet in December and extend the current cuts until June; or defer the decision until early next year, meet before March to see how the market looks and extend the cuts until the middle of the year,” said an OPEC source.
“It is more likely that we will extend the agreement in December to send a positive message to the market. The Saudis don’t want oil prices to fall, they want to put a floor under the prices because of the (Aramco) IPO.”
An OPEC delegate also said the market conditions in the first quarter of 2020 remain unclear amid concerns of a slowdown in oil demand and weak output compliance by some producers such as Iraq and Nigeria, which is complicating the outlook.
“My feeling is that (an extension) to end-June to avoid meeting again early March, with the possibility of calling for an (earlier) meeting should market conditions require it … is the likely scenario as of today.”
However, the two sources said formally announcing deeper cuts looked unlikely for now although a message about better compliance with existing cuts could be sent to the market.
Saudi Arabia, OPEC’s de facto leader, wants to focus first on boosting adherence to the group’s production-reduction pact before committing to any more cuts, they said.
“The Saudis want to see how the rest of those who are not complying (with the cuts) do first. There are no numbers being circulated so far for deeper cuts or changing output quotas,” said the first OPEC source.
