OPEC yet to clinch a deal on extending oil cuts as talks go to extra time

OPEC is giving itself a few more days to get its house in order, with disagreement over production quotas delaying a highly anticipated decision on whether deep output cuts will be extended into 2021.

OPEC's 13 countries had hoped to meet with Russia and other allies on Dec. 1 to finalize an agreement on output levels, but talks among its own members have hit a rancorous wall, forcing the coalition to postpone its meeting until Dec. 3 so that more consultations can take place.

The last-minute hold-up will sow doubts of the four-year-old alliance's staying power, as fatigue among many countries to reining in so much of their crude production may be reaching a breaking point.

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The OPEC+ coalition had at one point seemed close to a decision to maintain their collective 7.7 million b/d in output cuts through at least March to buttress oil prices against the impact of rising COVID-19 infections in Western countries.

Delegates said the framework of a cut extension for three months had been reached at OPEC's formal meeting Nov. 30, but the UAE, which has been wavering in its commitment to the group, has yet to take a position, endangering the negotiations. As well, some countries were still piqued that other members had yet to make up for previous quota busting with the so-called "compensation cuts" that they owe, sources added, leading to a highly charged atmosphere and recriminations.

Without an extension agreement, the curbs are scheduled to ease to 5.8 million b/d from January, which many analysts have said could overwhelm the market given the recent revival of crude production from quota-exempt Libya and the pandemic's resurgence in western countries.

Even an agreement among OPEC is not certain to be ratified by the non-OPEC members, many of whom also have reservations about keeping the onerous quotas in place.

Russia has expressed a desire to gradually increase quotas, while Kazakhstan wants to see the cuts rolled back as scheduled, sources told Platts after preliminary consultations among some members were organized Nov. 29.

"They are talking about extending current cuts and [Kazakhstan] proposed to ease [them]," a Kazakh government official told the Prime news agency. "In general the country is not against the deal and [has] no intention to withdraw. We are ready to discuss this position with partners."

Russia's energy ministry could not be reached for comment, though Kremlin spokesman Dmitry Peskov said current OPEC+ disagreements were "a working situation" and not as bad as in March when relations between Moscow and OPEC broke down, resulting in a brief but devastating price war before the current deal was put into place.

MANAGING THE MARKET

Algerian oil minister Abdelmadjid Attar opened the OPEC proceedings by urging his counterparts to remain resolute through the market turbulence.

A no-deal decision risks a major selloff in oil prices, a prospect members are keenly aware of.

Optimism over promising trial results for three coronavirus vaccines buoyed oil prices last week to their highest since March, and traders have long priced in expectations of a cut extension through at least the low seasonal demand period of the first quarter.

Platts assessed Dated Brent at $46.39/b on Nov. 30, down 1.35%, with traders citing uncertainty over OPEC+ resolve to seeing the cut extension through.

"We must be aware today that market conditions in 2020 are likely to continue into the first quarter of 2021 and that we must be cautious," said Attar, who holds the rotating OPEC presidency for 2020. "The pandemic continues to rage with cases soaring in many regions around the world. It continues to affect adversely the global economy and consequently the world energy market in an unprecedented manner."

Delegates said a three-month extension would likely require another OPEC+ meeting in March to reassess and decide on a path forward. That is another complicated discussion that OPEC ministers left unaddressed for now, delegates said.

Many members are pinning their hopes on the wide availability of coronavirus vaccines to restore the world economy, but that may not occur until the second half of 2021.

Even more of an existential threat to OPEC, core member the UAE has privately debated whether to remain in the organization long-term, with Abu Dhabi's state-owned oil company seeking to aggressively develop its upstream resources, S&P Global Platts previously reported.

PATIENCE NEEDED

With a decision still in doubt, OPEC did not issue a communique nor hold a press conference.

Ministers will engage in a flurry of consultations over the next couple of days, with the full OPEC+ meeting now scheduled to begin at 2 pm Vienna time (1300 GMT) on Dec. 3.

"Clearly some member countries will be hard to convince about further output discipline, and in case of an unexpected fallout, not only the price repercussions will hurt producers but the general existence of the OPEC alliance will be questioned," Tamas Varga, an analyst with brokerage PVM Associates said in a note.

Iranian oil minister Bijan Zanganeh told state media that he expects the talks "will be difficult and require negotiations and patience."

"What's important is to negotiate and be patient to reach conclusion," he said. "Now, Russia is to be discussed, Kazakhstan is, too; some of them have different proposals."