Faced with slowing global economic growth and abundant reserves putting pressure on oil prices, the OPEC group and its partners could seek to deepen output cuts during their meeting yesterday and today in Vienna.
The cuts of 1.2 million barrels per day from October last year levels were originally fixed in December last year and were already extended at OPEC’s last meeting in July.
Some observers expected the cuts to remain in place possibly until the end of next year.
However, Iraqi Minister of Oil Thamer Ghadban, on his arrival on Tuesday in Vienna, suggested that some members would push for output to be slashed by an additional 400,000 barrels per day.
However, he added that any cut was “very much subject to the member countries.”
In comments reported by Bloomberg on Wednesday, Ghadban was in favor of extending the current deal to the end of next year.
Meanwhile, Saudi Arabian Minister of Energy Prince Abdulaziz bin Salman — half-brother of Crown Prince Mohammed bin Salman — remained tight-lipped on his arrival in Vienna on Wednesday.
He told reporters simply that the market conditions were as “sunny” as the crisp winter weather in the Austrian capital.
Some observers say fresh production cuts and a boost to prices would suit Saudi Arabia as it tries to support the initial public offering (IPO) of its national oil company, Saudi Arabian Oil Co (Aramco).
The organization’s members might well be tempted to follow a cautious course by a forbidding global economic context.
The trade dispute with the US is acting as a drag on growth in China, normally an avid consumer of oil, while the European economy is also stagnating.
Moreover, the output of oil producers outside OPEC is breaking records: The US has been the world’s biggest producer since last year; Brazil and Canada have also increased output, while others, such as Norway, are planning to do so.
Analysts say that, taken together, these factors would leave OPEC little room for maneuver if it wants to fulfil its stated aim of securing “fair and stable prices for petroleum producers.”
Prices have held relatively steady since the last OPEC meeting, with a barrel of Brent crude hovering at about the US$60 mark, apart from a spike in September, sparked by attacks on Saudi Arabian oil installations.
While this is a comfortable price for the likes of Russia, whose budget for this year is predicated on a price of about US$42 a barrel, it is too low for countries such as Saudi Arabia.
The Riyadh government needs a higher price to finance its budget, despite having some of the world’s lowest production costs.
The big unknown in the run-up to the meetings has been the position of Russia.
The world’s second-biggest producer, which since late 2016 has been part of the so-called OPEC+ grouping, on Tuesday said that it had missed its monthly target for cuts last month for the eighth time this year.
Iraq and Nigeria — Africa’s biggest producer — have also regularly been exceeding their quotas.
Lipow Oil Associates LLC said that OPEC’s production cuts “are resting on Saudi Arabia’s shoulders.”
The Aramco IPO has been delayed several times with the bidding period closing on Wednesday.
While investors have balked at Aramco’s valuation of about US$1.7 trillion, this is still less than Saudi Arabian authorities were hoping for.
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