After two days of tense negotiations in Vienna, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, led by non-member producer Russia, reportedly reached a preliminary agreement to cut 12.2 million barrels per day from the oil market.
Riyadh been leading calls for OPEC to trim output to boost the oil market while Russia has been hesitant about its contribution to the cut.
OPEC itself will remove 800,000 barrels from the market, Bloomberg reported, adding that Iran said secured an exemption from cuts as it suffers the effects of US sanctions.
Producers will use October output levels as a baseline for cuts, the news agency reported, noting that the agreement will be reviewed in April. Russia has proposed a contribution equivalent to a 2% reduction from that month, according to one delegate, who said figures are still under discussion. Such a cut would equate to 228,000 barrels a day, Bloomberg calculations show, higher than its initial pitch for no more than 150,000 barrels a day.
The talks in Vienna followed a tweet from US President Donald J. Trump urging the oil cartel to keep production at current levels and prices down.
Chris Weafer, a senior partner at Macro-Advisory in Moscow, told New Europe as the negotiations were starting in Vienna that Russia’s oil majors were not in favour of another production cut. “They see that as mainly benefiting the US producers because a higher price and less OPEC-Russia oil would help the US grow both production and exports and to gain a bigger global market share,” Weafer said.
Trump, meanwhile, resumed his public pressure on the oil group, saying in a tweet on December 5, “Hopefully OPEC will be keeping oil flows as is, not restricted. The World does not want to see, or need, higher oil prices!”
Weafer, however, said that Russian President Vladimir Putin had made clear at the recently completed G20 in Buenos Aires that the political relationship with Saudi Arabia, and the other Gulf Arab states, is a key political priority for him and for Russia.
“It looks like he has told the oil companies that they have to be prepared to cut again if it is in the national interest,” Weafer said. “If that is what they are told, if this is what Russia agrees with Saudi Arabia or, more specifically, if this is what Putin agrees with (Saudi) Crown Prince Mohammed (bin Salman), then they will have no choice but to again fully comply,” Weafer said, adding that the days when Russia promised and then ignored the promise are gone.
“Putin would not stand for that given what is at stake,” said Weafer.“But I do not expect Russia to agree to the same 300,000 barrel per day cut it committed to in November 2016,” Weafer said, referring to the last time the OPEC+ group agreed to curtail output, settling on a combined 1.8 million-barrel-a-day reduction.
“The country is in a much better financial position today and Putin is more likely to look for a compromise to satisfy both Saudi and Russian oil majors,” the Moscow-based expert said.
Weafer said he expects Russia to agree to a cut of 100,000 or 150,000 barrels per day, at most, and to make that conditional on oil price weakness rather than an open-ended commitment.