Saudi Arabia says it is hoping an oil supply deal could result in an overall production cut of at least 1.3 million barrels per day, or 1.3 per cent of the world’s crude output. Bloomberg photo.
OPEC supply deal under pressure from Trump
Reuters reports that OPEC and Russia are moving closer to an oil supply deal to help stabilize oil prices, despite pressure from US President Donald Trump to cut oil prices.
The cartel is meeting in Vienna on Thursday and Friday. Also on Friday, OPEC will meet with allies, including Russia, to discuss the need for oil production cuts beginning in January.
So far, Russia has been cool to such an agreement, but Oman’s Oil Minister Mohammed bin Hamad Al-Rumhy told reporters “all of us, including Russia agreed there is a need for a reduction”.
The comments came after a ministerial committee meeting attended by Saudi Arabia, Russia and other producers on Wednesday.
Al-Rumhy said exact volumes are still under discussion and the cuts would take September or October 2018 as baseline figures. The oil supply deal is expected to last from January to June.
Russia’s Energy Minister Alexander Novak is reportedly seeking a final agreement from President Vladimir Putin, according to two Reuters’ sources.
Saudi Arabia is looking for OPEC and other participants to agree to a cut of at least 1.3 million barrels per day (b/d), or 1.3 per cent of global crude production.
As part of the agreement, the kingdom is hoping Russia will agree to reduce its output by at least 250,000 to 300,000 b/d. However, OPEC and non-OPEC sources say Moscow is insisting the amount should be half of that.
Russia’s TASS news agency reported an OPEC source said the cartel and its allies were discussing the possibility of reverting to production quotas agreed to in 2016. These cuts amounted to 1.8 million b/d and many participants decreased their production by more than originally pledged.
The agreement is facing opposition from US President Donald Trump who has been calling for higher production to ward off rising oil prices caused by his administration’s sanctions on Iranian crude exports.
The October killing of journalist Jamal Khashoggi at the Saudi consulate in Istanbul could complicate any OPEC decision. While Trump has backed Saudi Crown Prince Mohammed bin Salman, many US politicians are calling for stiff sanctions on Riyadh.
“How can the Saudis cut substantially if Trump doesn’t want a big cut?” Gary Ross, chief executive of U.S.-based Black Gold Investors and a veteran OPEC watcher told Reuters.
“Trump is worried about the Fed and inflation. So he wants low prices now. Also if Saudis are obnoxious with a deep output cut, it will spur the Democrats in Congress to go more actively for the Nopec legislation and the withdrawal of US support for the Saudi-backed forces in the war in Yemen,” Ross said.
Nopec legislation, under discussion by US lawmakers, could make it possible to sue Saudi Arabia and other cartel members for price fixing.
Bob McNally, president of Rapidan Energy Group, told Reuters that OPEC is stuck between a rock and a hard place with pressure from Trump on one side and the need for higher revenues on the other.
“We think OPEC will try to come up with a fuzzy production cut … It won’t be called a cut but will effectively mean a cut, which will also be difficult to quantify,” McNally said.
Since October, oil prices have fallen by almost one-third and by 2:37 p.m., EST, Brent crude was sitting at $61.92/barrel. Prices rose after the Saudis boosted their production to compensate for Iranian crude exports.