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OPEC+ output cut talks begin, with eyes on heavyweights Saudi Arabia, UAE


Saudi, Emirati ministers emerge from talks in show of unity

Cuts of up to 1 million b/d being discussed, sources say

Russia's Novak due in Vienna later ahead of June 4 meeting

  • Author
  • Herman Wang    Rosemary Griffin    Charlie Mitchell
  • Editor
  • James Leech
  • Commodity
  • Oil

OPEC and its allies may be on course to approve deeper crude oil output cuts in a bid to lift the market's bearish clouds, though ministers were tightlipped on any details following a series of multilateral meetings in Vienna on June 3, dominated by lengthy discussions between Saudi Arabia and the UAE.

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The potential cuts could be as deep as 1 million b/d -- on top of some 3.7 million b/d in reductions from October levels already in force -- according to people familiar with the matter, who have stressed that no final agreement has yet been reached. Any decision would need to be unanimously approved by the full OPEC+ coalition at its meeting set for June 4.

"I am optimistic that this group is solid and will always take the right decision to balance the market and ensure that we are ready for any challenges in the future," UAE energy minister Suhail al-Mazrouei told reporters before he met with his Saudi counterpart, Prince Abdulaziz bin Salman, for more than two hours in the morning.

The pair were joined for a spell by the Iraqi, Kuwaiti and Algerian delegations.

OPEC's 13 members then convened for a brief meeting at the secretariat that delegates said was mostly administrative.

Prince Abdulaziz would only say that the talks had been "fantastic." The Saudi minister later consulted with OPEC's African contingent.

Russian Deputy Prime Minister Alexander Novak, who handles Moscow's OPEC+ engagements, was due to arrive in the Austrian capital in the evening June 3, days after he appeared to contradict comments made by Prince Abdulaziz that prompted speculation about a production cut. Novak later said his remarks had been misrepresented.

Market uncertainty

The OPEC+ deliberations come with the supply and demand outlook very much hazy, complicating the alliance's attempts to steer the market and overcome what it considers speculative pessimism dragging down prices.

Analysts with S&P Global Commodity Insights expect a 2.3 million b/d year-on-year rise in global oil demand for 2023, much of it dependent on China's economy, which could tighten the market and induce draws from inventories. OPEC's own analysis, published in its latest monthly oil market report, also forecasts a 2.3 million b/d increase in demand.

"There is discussion about [Chinese demand]," Amir Hossein Zamaninia, Iran's OPEC governor, told journalists in his hotel, adding that "everything is on the table" in the weekend's OPEC meetings.

But non-OPEC supply growth in the US, Guyana and other key producers could offset some, if not all, of the demand boost.

"Bearish speculators will have a free ride in the next couple of weeks if OPEC+ decides to do nothing," independent analyst Anas al-Hajji said in a note. "And if the group ends up cutting production significantly, this will invalidate OPEC's bullish forecast on global oil demand, and it will also give China a reason to release oil from its inventories."

Meanwhile, an African delegate speaking on condition of anonymity said his country would balk at the prospect of further production cuts. Most African producers are on a mission to reverse production declines in recent months.

The OPEC+ alliance spent much of 2022 gradually raising production quotas as the global economy emerged from the pandemic, only to reverse course in October by slashing 2 million b/d to get ahead of what officials said were warning signs of a potential recession.

That briefly caused crude prices to surge past $100/b, before sliding below $72/b by mid-March.

Saudi Arabia, Iraq, the UAE and other major members then made a surprise 1.2 million b/d voluntary cut announcement in early April, in addition to an earlier 500,000 b/d cut pledge by sanctions-addled Russia.

But those price gains have proved even more fleeting. Platts, a unit of S&P Global Commodity Insights, assessed Dated Brent at $76.06/b on June 2, down from a four-month high of $88.21/b on April 12.

"We think that the continued macro worries and soured sentiment will lead the group to make another downward adjustment," analysts with RBC Capital Markets said in a note.

Internal dynamics

An additional cut of 1 million b/d would be a follow-through of Prince Abdulaziz's threat in late May to leave short-sellers "ouching," though details of how it would be administered have been tightly held in Vienna so far.

Internal OPEC+ geopolitics could complicate the negotiations. The UAE, whose main state oil producer ADNOC is investing heavily in expanding production capacity, has previously chafed at its prescribed cuts, particularly with several other OPEC+ members struggling to hit their quotas.

But Prince Abdulaziz and Mazrouei were all smiles following their talks June 3, emerging from the OPEC secretariat holding hands in a display of unity.

"Tomorrow is another day," Prince Abdulaziz told reporters, urging them to enjoy their time in Vienna.

The June 4 proceedings will begin with the nine-country Joint Ministerial Monitoring Committee, co-chaired by Prince Abdulaziz and Novak, convening at 11 am Vienna time (0900 GMT), followed immediately after by the full 23-member OPEC+ meeting.