Opec, Russia debate deeper oil cuts as new glut looms

[MOSCOW] Opec (Organization of the Petroleum Exporting Countries) and its allies led by Russia are gearing up to approve deeper oil production cuts this week to prevent a new glut and a collapse on oil prices with Opec member Iraq saying the move was supported by key members.

Non-Opec Russia also said it was expecting a constructive meeting as Opec leader Saudi Arabia presses fellow producers to deepen cuts to increase its budget revenue and raise a good price from the share sale of oil giant Saudi Aramco.

Opec meets on Thursday in Vienna followed by a meeting with Russia and others, a grouping known as Opec+, on Friday.

"A deeper cut is being preferred by a number of key members within Opec... my understanding is that they (Saudis) do (prefer it)," Iraqi Oil Minister Thamer Ghadhban told reporters in Vienna.

Opec+ has been curtailing output since 2017 to counter oversupply as a result of booming output in the US, which has become the world's biggest producer and is not taking part in cuts.

Russian Energy Minister Alexander Novak said Moscow had yet to finalise its position. "Let's wait ... But I think the meeting, as usual, will be of a constructive nature," he told reporters in Moscow.

A source familiar with the Russian thinking told Reuters that Moscow would "most likely" reach a consensus with Opec this week and just needed to iron out a few outstanding issues.

Producers must decide to continue, trim, deepen or dump their agreement which currently calls for a collective cut of 1.2 million barrels per day (bpd), about 1.2 per cent of global demand.

A sticking point for Russia this time is how its output is being measured - it includes gas condensate in its figures, while other producers do not.

"We will discuss with our colleagues to take account of our statistics the same way as for Opec countries - excluding condensate," Mr Novak said.

Russia has agreed to reduce output by 228,000 bpd to about 11.18 million bpd under the current deal but it pumped more than that - 11.244 million bpd - in November, Reuters calculations show.

Mr Novak said Russia's average cut was 195,000 bpd in November but by excluding condensate its output cut could be about 225,000-230,000 bpd in December. Moscow has typically taken a tough stance before Opec+ meetings before approving the policy.

FEARS OF NEW GLUT

Two sources told Reuters on Monday that Opec+ was considering deepening the cuts by at least 400,000 bpd.

JPMorgan said it expected producers to agree cuts of 1.5 million bpd to the end of 2020 - an increase of 300,000 bpd - as Saudi Arabia needs oil prices in the region of $60-70 per barrel.

Saudi Arabia is also pressing Iraq and Nigeria to improve their compliance with their output quotas as a condition for Saudi cutting more output.

Gary Ross, founder of Black Gold Investors, said Saudi need for higher oil revenue was rising with a decline in forex reserves, which are down by more than US$25 billion since May, according to the Saudi Arabian Monetary Agency.

Reports on Monday that Opec+ was considering deeper cuts helped lift oil prices. On Tuesday, benchmark Brent was steady near US$61 a barrel.

Without additional cuts the oil market risks a large oversupply and build-up in inventories in the first half of 2020, sources said on Monday citing the latest Opec analysis, drawn up by Opec's Economic Commission Board.

Expectations for 2020 US output growth range from as low of 100,000 bpd to as high as 1 million bpd although for many years the market has underestimated US oil production rises.

Bob McNally, founder of Rapidan Group, said that US output gains aside a major glut was looming next year without extra Opec cuts because of fresh supply from Brazil, Guyana and Norway.

Goldman Sachs analysts said Opec+ was likely to extend output curbs until June, but said three extra months would provide little support for prices, which they expect to trade around US$60 in 2020.

NO DEAL?

A senior official at the International Energy Agency (IEA), the West's energy watchdog, said on Tuesday that Opec was unlikely to agree a change to the output pact this week given uncertainty about the market outlook.

"There's a lot of uncertainties out there, not least the US shale outlook, strength in demand, the overall economic outlook, all the rest of it, that more likely than not they will leave it in place and meet again in March," said Neil Atkinson, head of the IEA's oil markets division.

REUTERS