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OPEC focuses on cuts deal after Qatar exit shock

Vienna — OPEC's key members are determined to agree this week a new output deal regardless of Qatar's surprise withdrawal from the producer group, according to ministers and delegates.

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"This won't complicate anything we are doing," UAE energy minister and OPEC President Suhail al-Mazrouei told S&P Global Platts on Monday.

His comments followed the shock announcement earlier in the day by Qatar's new energy minister Saad Sherida al-Kaabi of Doha's intention to exit OPEC from January 2019. Al Kaabi said leaving the group -- which controls almost a third of the world's supply of crude -- would allow the sheikhdom to focus on boosting LNG output to 110 million mt/yr, from 77 million mt/yr.

Factbox: Qatar exits OPEC to focus on LNG

OPEC meets Thursday to debate the need for output cuts, which Saudi Arabia, the UAE and other members say are necessary to prevent an oversupply in the first half of 2019. Russia and nine other key non-OPEC partners will join the talks Friday. S&P Global Platts Analytics forecasts a 1.2 million-1.4 million b/d output reduction from October levels.

Oil prices have lost of $20 since early October when Brent reached $86/b. The benchmark was trading at just over $61/b late on Monday.

Qatar's decision comes against a divided political backdrop amongst oil producers in the Gulf region and could intensify rivalries. Qatar is locked in a bitter diplomatic feud with OPEC kingpins Saudi Arabia and the UAE, which have enforced an economic boycott of the peninsula.

Oman's oil minister Mohammed al-Rumhi -- who sits on OPEC's key market monitoring committee as part of its production alliance with the group -- expressed his dismay at the Qatar decision. Al-Rumhi warned Doha could face retaliation from some OPEC members, citing Qatar's hosting of the Gas Exporting Countries Forum.

"A number of countries could pull out [of the GCEF] because of Qatar's position," said Rumhi, who will be participating in the OPEC/non-OPEC talks in Vienna. "I can tell you for sure the UAE will pull out of that organization, I don't think they will continue, and who knows [with] other countries like Algeria that are members of OPEC?"

Gabriel Obiang Lima, the oil minster of OPEC member Equatorial Guinea, called for oil producers to "stand together" ahead of the OPEC meeting.

Despite producing only around 620,000 b/d of crude, Qatar is a significant energy supplier to world markets. Including LNG, natural gas, LPG and condensate, its total output reaches close to 5 million b/d of oil equivalent. Although Qatar's crude production represents only 2% of OPEC's total, adding in its 1.24 million b/d of condensate and NGL output, means the country's liquids output makes up 4% of the total oil liquids pumped by OPEC.

"While Qatar is a small producer in terms of OPEC's task at hand, the news of its exit from the group presents a public relations and perhaps sentiment problem going into a crucial week for oil markets," Joe McMonigle, senior energy analyst for Hedgeye Risk Management, said.

OPEC EVOLUTION

Sara Vakhshouri, a Washington-based analyst who heads the consultancy SVB International, said the exit of Qatar from OPEC is symptomatic of the weakening ties between members, as Saudi Arabia and non-OPEC Russia have taken the reins of output policymaking over the past two years.

The 25-country OPEC/non-OPEC coalition controls close to half of global crude production.

"Some of the members feel their interests are not fulfilled, and they are not gaining much by remaining in OPEC," Vakhshouri said. "This could evolve OPEC's function and realities from what we are used to."

Although officials from OPEC and its allies were "surprised" by Qatar's withdrawal it is not expected to derail their market management strategy.

"Why should we (worry), Qatar is a small producer?" one of the OPEC sources said, noting that the organization added the Republic of Congo this year and Equatorial Guinea last year as members. "They want to focus on LNG and create and become a leader of the gas market."

OPEC said it "remains fully committed to achieving and sustaining balance and stability in the market, through the organization, and with the landmark 'Declaration of Cooperation' alongside 10 participating non-OPEC countries."

Russian energy officials declined to comment, saying it was an internal OPEC matter.

Kaabi, who formerly headed state-owned Qatar Petroleum, was named minister of state for energy affairs last month in a cabinet reorganization, replacing the previous oil minister Mohammed al-Sada. Qatar has been a member of the group since 1961.

Qatari officials said Kaabi still intends to attend the OPEC/non-OPEC talks this week, though it was uncertain whether Qatar would remain in the coalition as a non-OPEC producer next year or participate in any production cuts.

-- Herman Wang, herman.wang@spglobal.com

-- Miriam Malek, miriam.malek@spglobal.com

-- Edited by Robert Perkins, newsdesk@spglobal.com