Vienna — OPEC talks over the future of its production cut agreement are on a knifeedge, as ministers gather in Vienna ahead of Friday's critical meeting.
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The producer bloc hosts a two-day seminar starting Wednesday, aconference featuring ministers and CEOs of major oil companies, includingBP, Total, Eni, Saudi Aramco, ADNOC and others, as speakers.
The seminar also serves as a venue for bilateral and multilateral talks,where OPEC ministers hope to work out a compromise over output quotasthat some members, notably Saudi Arabia, want to ease.
The deal calls on OPEC and 10 non-OPEC partners, led by Russia, to 1.8million b/d in supply cuts through the end of the year.
Here is the state of play in the OPEC negotiations:
WHAT PROPOSALS ARE ON THE TABLE?
Russia, whose domestic oil companies are champing at the bit to loosenthe taps, has suggested the OPEC/non-OPEC coalition raise quotas by 1.5million b/d for a few months, with a review after the peak summer demandseason ends.
Energy Minister Alexander Novak, who will only be in Vienna brieflyThursday and then again on Saturday, has said such an output boost isneeded to prevent global oil inventories from draining to criticallevels.
Saudi Arabia appears on board with pulling back on quotas, but is said towant a smaller amount, perhaps 300,000-600,000 b/d, to fill any supplygap left by Venezuela's continued decline and US sanctions on Iran, aswell as to ease concerns from US President Donald Trump, a key ally, onhigh oil prices.
Saudi energy minister Khalid al-Falih has not spoken to reporters sincearriving in Vienna early Wednesday, but Prince Abdulaziz bin Salman, thekingdom's minister of state for energy affairs, told the OPEC Seminarthat Saudi Arabia is "committed to ensuring the availability ofsupplies."
ARE ANY SIGNS OF CONSENSUS EMERGING?
Iran, facing US sanctions on its oil sector that go into force November5, remains adamantly opposed to raising quotas, oil minister BijanZanganeh told reporters Tuesday.
But he appeared to create an opening for a deal, saying that with OPECovercomplying with its cuts by about 1 million b/d, Iran would have noobjection to members raising production to their full individualallocations, as long as they don't take market share from others.
"I cannot reject it. We agreed on 100% compliance, not more," he said.
OPEC produced 31.90 million b/d in May, according to the latest S&PGlobal Platts OPEC survey. That's about 840,000 barrels below its ceilingof about 32.74 million b/d, when every country's quota is added up.
But Venezuela on its own was 610,000 b/d below its quota in May,according to the survey, and given the country's severe economic crisis,it is unlikely to be able to raise its output. So, if Venezuela isexcluded, the rest of OPEC has 230,000 b/d of breathing space below theceiling.
Whether that amount would be amenable to OPEC members seeking significantoutput boosts remains to be seen.
COULD SAUDI ARABIA AND RUSSIA DECIDE TO RAISE OUTPUT ON THEIR OWN?
In the absence of a deal, there is nothing preventing any member frombreaking its production quota. There is no enforcement mechanism on thecuts, beyond diplomatic pressure exerted by a Joint MinisterialMonitoring Committee - which Saudi Arabia chairs and Russia serves asalternate chair.
But Saudi Arabia may have more strategic reasons for wanting to keep thecoalition intact, as the kingdom embarks on ambitious economic reformsthat require higher oil prices to finance.
An OPEC in disarray would lead to doubts about Saudi Arabia's ability tomaintain control of the oil market, particularly as it looks to list itsstate oil company Aramco publicly at long last.
HOW MUCH COULD OPEC RAISE PRODUCTION?
S&P Global Platts Analytics estimates OPEC spare capacity at 2.0 millionb/d, of which Saudi Arabia holds the vast majority.
"If Saudi Arabia production increases materially, OPEC spare capacitywould be left very tight," inhibiting the bloc's ability to respond tosupply disruptions, Platts Analytics said in a recent note to clients.
Whatever spare capacity Saudi Arabia may have, its highest-ever monthlycrude production was 10.66 million b/d in August 2016, according toPlatts OPEC survey records. That is 650,000 b/d higher than it producedin May 2018.
OPEC's highest collective monthly crude output was 33.86 million b/d inNovember 2016, according to the Platts OPEC survey, though this includesIndonesia, which suspended its membership in December 2016, and does notinclude Equatorial Guinea, which joined in May 2017.
WHAT IS THE SCHEDULE AHEAD?
The OPEC Seminar continues through Thursday.
The JMMC monitoring committee will meet Thursday afternoon Vienna time.
OPEC's regular meeting is Friday, with non-OPEC participants in theproduction cut agreement joining on Saturday.
--Edited by Jonathan Dart, firstname.lastname@example.org