Vienna — Major OPEC members on Thursday appeared to be closing in on a consensus to extend their 1.8 million b/d production cut agreement through the end of 2018, subject to review every three months, but with a few key details still to be sorted.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
The approval of key non-OPEC producer Russia, which is scheduled to join talks with OPEC members later Thursday, is also not yet assured. Ahead of the meeting, ministers from Saudi Arabia and Iran said they would all prefer a nine-month extension of the cuts past their March expiry, though Iran's Bijan Zanganeh said a six-month option was still on the table.
The nine-month proposal is "better," Zanganeh told reporters, as the longer the term of the deal, "the market will be more stabilized." Current "prices are not high, but acceptable," he said, with most members favoring a range of $60-$65/b. Saudi energy minister Khalid al-Falih has pushed for the nine-month extension, though he acknowledged that "I only have one vote" out of 24 countries in the deal.
But whatever decision ministers take, it will be subject to review at OPEC's next meeting in June or even "earlier if need be," Falih said, noting that a five-country monitoring committee will meet every other month throughout the deal to assess market conditions. "At the end of the day, we need 24 countries to sign on to the decision," Falih told reporters. Iraqi oil minister Jabbar al-Luaibi said there was a proposal to monitor the deal every three months. The current deal calls on OPEC and its 10 non-OPEC partners, led by Russia, to cut 1.8 million b/d in supplies from October 2016 levels to hasten the market's rebalancing. It is scheduled to expire in March.
EXEMPTIONS TO BE DISCUSSED
While the length of any extension appears to be the focus of the debate today, there are also issues over non-compliance to existing quotas, and whether to impose output caps on Libya and Nigeria, two major OPEC members whose output has been severely impacted by militancy.
"There has been a proposal to include Nigeria and Libya. But this has not been agreed yet," Luaibi said.
Discussions over Nigeria may be relatively easy. Nigerian oil minister Emmanuel Kachikwu said his country was "happy" to support a production cap of 1.8 million b/d, a figure he expects to reach by January next year. Current Nigerian output was 1.70 million b/d to 1.75 million b/d, he said. He added that Nigeria had been responsible with its exemption to support the overall goals of the coalition to bring oil inventories down to the five-year average.
"I have tried to be as disciplined about it as possible that is why you have seen that our production hasn't ramped up as rapidly as we ordinarily do that," he said.
A Libyan output cap may be a more difficult conversation, however. Output rebounded to 980,000 b/d in October, a rise of 70,000 b/d from the previous month as production from key fields like Sharara ramped up, according to the latest survey of OPEC countries by S&P Global Platts. State-owned National Oil Corp. has ambitions to push output closer to its target of 1.25 million b/d by the year-end, but this looks tricky, with technical and security problems across the country. NOC chairman Mustafa Sanalla, who effectively heads Libya's oil sector policy, refused to speak to journalists ahead of the meeting.
Another issue will be the level of non-compliance from some member countries. While overall the group has been keen to point out strong conformity at more than 100%, it has not been uniform across the group. Iran, which was actually granted a little room to increase production, complained that not all were pulling their weight.
"I think it's necessary that the members or participants who have not fully complied to their commitments to compensate during the coming months," Zanganeh said.
Luaibi suggested that "two or three countries from outside OPEC are proposed to be added," to give the production cut deal more heft.
OPEC invited up to 20 countries outside the deal to attend the meeting. Egypt and Turkmenistan were at the meeting as observers.
Falih said not to expect deeper cuts from the coalition, given already tightening market fundamentals and inventory levels.
"I don't think we need to consider anything radical," Falih said. "From the outset, we've said we want this correction to the oversupply to be gentle. We don't want to rock the oil market or the global economy."
But he said OPEC's base case market analysis indicates that the 1.8 million b/d in OPEC/non-OPEC production cuts would need to continue through all of 2018 to bring down inventories to the five-year average.
"I don't expect in the next couple of quarters to change the course that we are in," he said. "But we need to consider [potential] surprises" in the market.
Falih added that OPEC producers were committed that any exit from the oil cut deal "will be gentle," but that it was still premature to consider how to end the cuts. He reiterated his belief that US shale supplies would be needed to meet future oil demand, but that "we don't think shale can do it alone."