OPEC+ to discuss extending oil cuts

1 December, 2020 12:00 AM printer

DUBAI: OPEC+ members will consider whether to extend existing oil cuts for three to four months or to gradually increase output from January during their two days of talks that start on Monday.

Officials from the Organization of the Petroleum Exporting Countries, Russia and others, a group known as OPEC+, held an initial round of talks on Sunday before formal discussions began but have yet to agree output policy for 2021, report agencies.

OPEC+ had been due to ease its existing production cuts by 2 million barrels per day (bpd) from January 2021, but a second coronavirus wave has reduced demand for fuel around the world, prompting a rethink among members of the group.

OPEC+ is now considering extending the existing cuts of 7.7 million bpd, about 8per cent of global demand, into the first months of 2021, a position supported by OPEC’s de-facto leader Saudi Arabia and other major producers in the group, sources said.

Preliminary consultations on Sunday between the key ministers, including from Saudi Arabia and Russia, did not reached a compromise on the duration of a rollover.

Sources have said talks were now focusing on extending cuts by three to four months or gradually increasing output from January, a position supported by Russia.

Kazakhstan, a member of OPEC+, has opposed extending the oil cuts into next year and has instead called for increasing output in line with the existing agreement, one source said.

“Today meeting will be difficult, especially if Russia and Kazakhstan didn’t change their position,” the OPEC+ source said on Monday.

The meeting of OPEC, which precedes a gathering of the wider OPEC+ alliance, was expected to start at 1300 GMT on Monday.

“The longer these agreements go on, the harder it is to hold it together,” said Jacques Rousseau, managing director at Clearview Energy Partners. “There becomes too much temptation for countries to exceed their production targets.”

OPEC and its allies agreed to cut production in April by about 10 million barrels per day through July. Then in August, as some cities around the world took steps to re-open their economies, the group upped its production so it was cutting 7.7 million barrels per day through year-end. They planned to increase production in January so that the cuts would be just 6 million barrels per day.

But experts expect the group to continue with cuts of about 7.7 million barrels per day in the coming months. Saudi Arabia’s energy minister recently indicated willingness to revisit the agreement and prolong the cuts.

Other countries that want to produce more, such as the United Arab Emirates or Iraq, could create conflict in the meetings, Rousseau said. Complicating matters, Libya - which was exempt from cuts because of instability in the country - has ramped up production to about 1 million barrels per day, up from a low of just 100,000 barrels during the spring and summer, he said.

Energy forecasters around the world, including those employed by OPEC, have been lowering their forecasts about how much oil will be needed. One reason: airline travel, especially for long-haul international trips, has been dramatically reduced, and is not expected to rebound for a few years.