OPEC+ ministers in last-minute flurry of talks, with a deal on oil cuts in sight

London — A week of tense and intense talks has come down to this -– OPEC and its allies will decide Dec. 3 how much crude to pump in the coming months in a still recovering oil market entering the doldrums of the northern hemisphere winter.

The outcome of the meeting will hinge on how the coalition can resolve sharp disputes over the way production quotas are enforced and differing views on how rapidly the market is recovering from the pandemic.

Delegates say a compromise is near, with countries broadly agreeing to gradually raise production month by month -– a deal favored by Russia and the UAE and a concession from Saudi Arabia and other members that had argued for a straight rollover of stringent quotas through at least March.

However, many particulars, including the exact schedule of the increase and how much previous violations of output quotas will be made whole, are still in flux.

"A gradual increase plan gives everyone straining at the leash something to look forward to and assures them that US oil will not be allowed to steal the market as demand returns," said Vandana Hari, who heads the consultancy Vanda Insights.

OPEC+ ministers will convene at 3 pm Vienna time (1400 GMT) on Dec. 3.

The alliance is aiming to clinch a plan that can support the market through the traditionally low demand first quarter, with the hopes that a coronavirus vaccine can bring the global economy back on track sooner rather than later.

That the 22-country OPEC+ alliance may be close to a decision should come as a relief for producers who remember all too well the brief price war from April, when talks between Saudi Arabia and Russia broke down, causing the market to crash until the two sides patched things up in an emergency meeting and implemented the current supply accord.

The producer group, which controls roughly half of global crude production capacity, is currently cutting 7.7 million b/d from November 2018 levels, and without a deal, the curbs will ease by about a quarter to 5.8 million b/d from January –- or disappear entirely if the entire alliance collapses.

Frictional resistance

Formal talks between OPEC's 13 members on Nov. 30 hit an impasse, prompting them to delay their scheduled meeting the next day with Russia and the eight other non-OPEC partners until Dec. 3.

Sources described angry recriminations and a threat by Saudi energy minister Prince Abdulaziz bin Salman to quit as co-chair of a key OPEC+ monitoring committee.

The UAE, in particular, declined to endorse the Saudi-backed proposal to maintain the 7.7 million b/d cut for three months to support the market through the traditionally low demand first quarter, with the hopes that a coronavirus vaccine can bring the global economy back on track sooner rather than later.

Sources said the UAE insisted that quota-busting countries, such as Russia, Iraq and Nigeria, be held to account with so-called 'compensation cuts' that have to date been largely unenforced, except on itself.

Iraq has said it cannot afford to continue cutting so deeply, while Nigeria has lobbied OPEC to not include its Agbami grade in its crude production figures, arguing that it is condensate and, therefore, exempt from quotas.

Russia, meanwhile, has been pushing for a deal that would allow a gradual lifting of quotas, with its domestic oil companies wary of losing more market share.

The coalition now appears to be leaning towards that option. One delegate described a proposal to maintain the current cuts for January, and then ease them by 500,000 b/d each month from February to May.

Another said there was a proposition for a 500,000 b/d output increase for just January.

But they stressed that nothing has been finalized and that there was still a lot of talking to be done.