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OPEC at loggerheads over proposal to deepen oil cuts with Russia and others

Highlights

OPEC+ agrees to 500,000 b/d in additional cuts

Details of divvying up quotas proving contentious

Russia gains condensate exemption

Vienna — OPEC negotiations over production cuts were continuing into their sixth hour Thursday evening, with sources telling S&P Global Platts that vehement disagreements over how to allocate quotas were threatening to unravel the organization.

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OPEC earlier in the afternoon had agreed with Russia and nine other allies on the framework of a deal to deepen their 1.2 million b/d production cut accord by 500,000 b/d through the first quarter of 2020 to avert an oil price slump in the low-demand months ahead.

But the nitty gritty of divvying up the cuts has proven contentious within OPEC.

Angola's delegation walked out of the meeting at one point, unwilling to shoulder an additional 11,000 b/d cut, sources said. The officials were eventually brought back to the table but were still working out their differences, the sources said.

Iraq, which has consistently violated its quota, was also playing hardball on accepting additional supply curbs, according to sources.

A scheduled post-meeting press conference was canceled.

A gala dinner boat cruise to celebrate the third year of cooperation between OPEC and its partners was also called off.

The proposed deal called on OPEC to take on 395,000 b/d of the new cuts and the non-OPEC allies to shoulder 105,000 b/d, delegates said.

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Depending on how the quotas are redistributed -- including how much of the burden of the new cuts Saudi Arabia is willing to shoulder -- the coalition may not need to slash output much further to meet the recommendation.

An S&P Global Platts survey of OPEC production released Thursday found that the bloc was already over-complying with its current supply curbs by some 368,000 b/d below agreed quotas, mostly by Saudi Arabia, OPEC's largest member and de facto leader.

Shares of Saudi Arabia's state oil company are set to begin trading next week. Saudi Aramco Thursday priced its IPO at Riyal 32/share ($8.53/share) at the top of its expected range, making it the world's largest IPO.

The kingdom has also leaned heavily on Iraq and Nigeria to strengthen their own lackluster compliance with their production quotas and stop free-riding on the efforts of other members.

Russia and nine other non-OPEC partners were scheduled to join the OPEC talks on Friday to formally ratify the deal.

Oil prices had whipsawed since the proposal was first unveiled by a Saudi-Russian co-chaired OPEC+ monitoring committee in the afternoon, as the market digested the vague details.

ICE front-month Brent settled at $63.39/b, up 39 cents, while NYMEX front-month crude settled at $58.43/b.

The proposal calls for the OPEC+ coalition to meet again in the first week of March to review the deal and extend it, if warranted, through the rest of 2020.

"By then we will have a better understanding of the market's development and forecasts of summer demand and supply," Russian energy minister Alexander Novak told reporters. "We really do see some risks of oversupply in first quarter connected with seasonal drought of demand."

Almost all forecasts indicate a market surplus in the first half of the year, on lower seasonal demand. The US-China trade dispute is also weighing on global economic growth forecasts.

But the second half of 2020 looks potentially more bullish for oil prices as demand is expected to pick up.

Venezuelan oil minister Manuel Quevedo said OPEC was expecting global GDP to grow 3% next year "and receive a further boost if trade tensions are resolved."

CONDENSATE EXEMPTION

Under the proposal, Russia will be allowed to exclude its condensate volumes from its production quota, Novak said.

This will give Russia more flexibility in complying with its quota, which will now only count crude barrels. The exemption will also apply to the nine other non-OPEC partners in the coalition, Novak said.

With the condensate exemption, Russia's quota of 11.19 million b/d will now fall to 10.43 million b/d.

Russia has struggled to bring its oil production in line with its previous cap, having pumped more than its allotment since August.

Without counting the condensate barrels, though, Russia's compliance would be slightly over 100%, Novak said.

-- Staff, newsdesk@spglobal.com

-- Edited by Jeff Mower, newsdesk@spglobal.com