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OPEC+ seeks US buy-in on oil cuts with webinar summit scheduled for Monday

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OPEC+ seeks US buy-in on oil cuts with webinar summit scheduled for Monday

Highlights

Ministers, delegates say 10 million b/d cut deal in play

Russian minister Novak confirms his participation

Trump to meet with US oil company CEOs

London — The OPEC+ alliance plans an extraordinary meeting Monday to try and broker a deal on production cuts, but negotiations and horse-trading were already underway Friday, as members held a flurry of calls to exchange proposals and trade intelligence, according to delegates.

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Ministers appear to be coalescing around collective supply curbs of 10 million b/d, but details on how they would be divvied up - and indeed which countries would participate - are still in flux.

By comparison, OPEC's largest ever production cut was 4.8 million b/d in 2008, noted Giovanni Staunovo, an analyst with investment bank UBS.

"Agreeing on a date for a meeting is one thing; splitting up those large cuts and making them credible is another," he said.

Monday's summit will be held via webinar, but no time has yet been set.

Russia confirmed Friday that Energy Minister Alexander Novak would take part, after being noncommittal for much of the day, but the involvement of the US remains uncertain, despite President Donald Trump's proclamation in Twitter Thursday that he had successfully intervened in the Saudi-Russia price war that has inflamed the oil market's coronavirus-induced meltdown.

Saudi Arabia has made it clear that the inclusion of major producers outside of the OPEC+ coalition - particularly the US - was vital to any deal on output cuts.

"The Saudis want everyone to share the pain," one OPEC delegate said, asking not to be identified because of the sensitivity of the discussions.

"All are ready to cut jointly if [producers] other than OPEC+ also join" in, another delegate said.

OPEC+ consists of OPEC, Russia, Mexico, Kazakhstan, Oman, Azerbaijan, Malaysia, Bahrain, Sudan, South Sudan and Brunei, who have been coordinating a series of production cuts aimed at propping up the market since 2017.

But the alliance was nearly terminated at its last meeting March 6, when Russia rejected a Saudi-led OPEC proposal for deeper cuts to combat the coronavirus' impact on the oil market, unleashing the current price war.

With both sides now back at the negotiating table, Novak said he sees the need for a coordinated global cut of 10 million b/d.

"Production needs to be cut for the next few months, with a subsequent increase in production as the global economy recovers, as demand recovers," Novak said, according to a Kremlin transcript, adding that all major producers should take part in any co-ordinated cut.

DIALING BACK PRODUCTION

Trump was scheduled to meet with the CEOs of several American producers later Friday. While some US shale companies have been pressuring the Trump administration to forge a deal that would boost prices and stave off layoffs and bankruptcies, not all are on board.

OPEC sources declined to say what the bloc would do if the US does not buy in to a cut agreement.

Beyond recalcitrant companies, the deal would require several Persian Gulf OPEC members to unwind their recent production surges.

OPEC kingpin Saudi Arabia said it had boosted production by almost a third to its maximum capacity of 12 million b/d, while the UAE's ADNOC hit 4.03 million b/d on Wednesday - about 1 million b/d higher than its recent levels - according to an industry source.

Kuwait Petroleum Corp. CEO Hashem Hashem said Friday his country's production had reached 2.9 million b/d in March and would rise to 3.15 million b/d in April, according to state-run news agency Kuna.

Helima Croft, head of global commodity strategy with RBC Capital, said Saudi Arabia could be prepared to drop its production to about 8.5 million b/d, but probably no lower given its desire to maintain associated gas production.

Russia, meanwhile, will likely seek investment from core OPEC members, as well as some sanctions relief from the US, including on Russian oil company Rosneft, whose CEO Igor Sechin is a close ally of Russian President Vladimir Putin, Croft said.

DETAILS MAKE THE DEAL

Trump's tweet and the announcement of the OPEC+ meeting have seen oil prices rally over the last two days.

But any collective production cuts would still be battling the headwinds of the massive contraction in global oil demand due to the coronavirus pandemic - which some say could be as high as 20 million b/d.

Joe McMonigle, an analyst with Hedgeye Capital, said a deal between OPEC+, the US and possibly others may not completely balance the market, but it could possibly set a floor under prices that had been in freefall.

"It's very positive that the world's top three oil producers are talking about stabilizing oil markets, but demand declines from coronavirus impacts are casting a huge shadow in the oil sector," McMonigle said.

Delegates said talks would continue through the weekend, in the hope of agreeing on the main framework of a deal before the formalities of Monday's summit.

Ensuring that countries stick to their production quotas will be a major sticking point, delegates said. Russia, along with OPEC members Iraq and Nigeria, have been serial overproducers over the previous several rounds of OPEC+ cuts, free-riding on the overcompliance of Saudi Arabia and other countries, much to their ire.

"Compliance will be key," one delegate said.