VIENNA, Austria, Dec 7 – OPEC ministers resumed talks Friday before further discussions with 10 key partner countries, including Russia, later in the day to thrash out an agreement on production cuts.
Amid sharp differences over which way to go, the oil market continued under pressure.
In early trade Friday, the price of Brent, the European benchmark, was again under the symbolic $60 mark after a slump Thursday when the cartel failed to reach an expected accord on cuts to stem price falls.
“No, I am not confident” about the chances of a deal, Saudi oil minister Khalid Al-Falih told reporters after a long day of negotiations at OPEC headquarters in Vienna.
However, OPEC and its non-cartel members — who combined account for around half of global output — agree on one thing: a glut on the market has led to oil prices falling by more than 30 percent in the space of two months.
Analysts say that without a substantial cut being announced at today’s meeting, that downward pressure will continue.
Should “a 1-1.4 million barrels per day production cut fail to materialize, bearish pressures can be expected to trigger a sharp decline in global oil benchmarks beyond 2018,” Benjamin Lu, analyst at Phillip Futures, said on Friday.
However, the major players all have their own reasons to look to others to act first.
For Russia, which leads the non-member countries in the so-called OPEC+ alliance, “it’s much more difficult to cut than for other countries, because of our climatic conditions,” Russian Energy Minister Alexander Novak said on Thursday.
OPEC Kingpin Saudi Arabia, meanwhile, has to bear in mind pressure from the US after President Donald Trump demanded in a tweet on Wednesday that the cartel boost output so as to lower prices and help the economy.
The kingdom’s diplomatic position however has been badly weakened by the furore over the killing of journalist Jamal Khashoggi.
Trump insists he will stick by Riyadh despite the outrage but he has been also ramping up the pressure for more oil.
Though al-Falih insisted that “we don’t need permission from anyone to cut” production, the figure of a million barrels put forward by Saudi Arabia was lower than the reduction expected by the markets.
Iran, Saudi Arabia’s geopolitical rival and OPEC’s third-largest producer, has suggested it is in favour of deeper cuts – while asking to be exempted from them because of the effects of US sanctions targeting its oil sector.
The thorny question of exemptions, which will also be sought by Venezuela and Libya according to the Bloomberg news agency, could be crucial for Friday’s talks.
The amount and the timetable of any cuts imposed by Russia will also be a key sticking point.
Iraqi oil minister Thamir Abbas Al Ghadhban said he was still “hopeful” an agreement could be reached on Friday.
Analysts say that the details of any agreement will be key in determining what happens next to prices, particularly the size of any reduction and the question of whether Iran is included or not.
In June, OPEC and its partners agreed to allow for a boost in production by Saudi Arabia and Russia to compensate for the expected losses in output from Iran after the US dramatically withdrew from the Iran nuclear deal in May and decided to re-impose tough sanctions.
However, the US then granted temporary waivers to eight countries, including crucially China, to allow them to carry on importing Iranian oil, contributing to a plunge in oil prices which wiped out the gains seen since early 2017.