You are here

Opec said to remain split as Russia says it won't attend meeting

Tuesday, November 29, 2016 - 15:46
JT-40710909 - 29_11_2016 - ASIA-OPEC_OIL.jpg
Opec officials failed to bridge their differences on an agreement to cut production and revive oil prices, while Russia said it's not planning to attend crucial talks on Wednesday.

[TEHRAN] Opec officials failed to bridge their differences on an agreement to cut production and revive oil prices, while Russia said it's not planning to attend crucial talks on Wednesday.

With just one day left before ministers from the Organization of Petroleum Exporting Countries meet to finalise the first decline in production in eight years, the foundations for a deal were looking increasingly shaky on Tuesday.

After a 10-hour meeting on Monday, Iraq and Iran continued to express objections, according to an Opec delegate who asked not to be named due to the sensitivity of the negotiations.

The result: Opec officials agreed to refer the matter to ministers for further consideration. A proposed deal would trim production by 1.2 million barrels a day from October levels, though it remains unclear whether the idea has the support needed for approval, the delegate said.

Benchmark Brent crude fell as much as 1.2 pe rcent to US$47.68 a barrel in London, after touching US$48.81 on Monday.

Inside the meeting, countries fought to the very last barrel. Iran suggested a deal whereby it freezes production at 3.975 million barrels a day, or about 200,000 barrels a day above its current output, according to two Opec delegates with knowledge of the talks. Saudi Arabia countered with a proposal for Iran to cap output at 3.707 million barrels a day, roughly its current level.

In an attempt to break the impasse, Algeria, which is acting as a go-between in the talks, offered an alternative that would see Iran freezing at 3.795 million barrels a day, the delegates said. It's unclear if any of those proposals would gather any support when ministers meet on Wednesday in Vienna.

As Opec tries to resolve its own differences, the group is also asking other big producers including Russia to reduce output by as much as 600,000 barrels a day. 

The Kremlin so far has resisted requests that it join the cut, offering instead to freeze production at current levels. Energy Minister Alexander Novak said Tuesday that he has no plans to visit Vienna on Wednesday, but that Russia is ready to talk with Opec once the group reaches an internal consensus.

Russian resistance to reducing supply was a factor that forced the cancellation of planned discussions on Monday with non-Opec suppliers. Last week, Saudi Arabia pulled out of the meeting, arguing that Opec needs to sort out its internal divisions before engaging with other producers.

On Sunday, Khalid Al-Falih, the Saudi oil minister, for the first time floated the possibility of leaving Vienna without an agreement. It's unclear whether the minister changed his mind about the deal's merits, or is trying to boost his negotiating position with Iran and Iraq.

"Saudi Arabia and Iran are all playing very strong negotiation tactics," said Abhishek Deshpande, chief energy analyst at Natixis SA.

 "The problem for Saudi Arabia is that this isn't the 1980s and 1990s, when it could use its clout and expect others to follow. Today members like Iran and Iraq are equally strong and their agenda is to ensure they get a large market share."

Both Iraq and Iran have resisted cutting their own production, but need an Opec deal to benefit from any increase in oil prices.

As negotiations in Vienna unfolded Monday, the official news service for Iran's oil ministry, Shana, published an article on the country's position. The report quoted Oil Minister Bijan Namdar Zanganeh as saying that reviving Iranian oil output was "the national will and demand of the Iranian people".

In the article, Mr Zanganeh said Iran was excluded from the production-cut decision adopted in late September in Algiers. Saudi Arabia is opposed to exempting Iran completely from the deal, so far only accepting Libya and Nigeria as special cases.

Without an Opec cut, the International Energy Agency predicts that the oil market will remain in surplus for a fourth year in 2017, which could cause prices to fall. Yet Saudi Arabia's Al-Falih has expressed a more optimistic view.

"We expect demand to recover in 2017, then prices will stabilise, and this will happen without an intervention from Opec," Mr Al-Falih said in Dhahran, eastern Saudi Arabia, on Sunday, according to local newspaper Asharq al-Awsat.

"We don't have a single path which is to cut production at the Opec meeting, we can also depend on recovery in consumption."

BLOOMBERG

Powered by GET.comGetCom