In Oil & Companies News 12/10/2016
Saudi Arabia’s oil minister left Istanbul with a pledge that Russia would join efforts to limit oil production, leaving internal OPEC disagreements over how to share the burden of the cuts as the last obstacle to a global deal.
Russia’s two largest oil producers said Tuesday they would comply with any government instructions to curb oil output, following President Vladimir Putin’s backing on Monday for a supply deal with the Organization of Petroleum Exporting Countries. That leaves the success or failure of an accord involving producers of half the world’s oil in the hands of an OPEC committee set to meet later this month, which needs to resolve disputes with Venezuela and Iraq over how much they can pump.
“It’s more likely than ever that there will be some kind of cooperation between OPEC and non-OPEC,” Tamas Varga, an analyst at PVM Oil Associates Ltd. in London, said by phone. “Even if there’s an agreement that’s reached, the following three months after the agreement will be crucial, when we will actually see production figures.”
Seeking Cooperation
Ministers from some of the largest oil-producing nations gathered in Turkey this week to discuss ways to end a two-year supply glut. With benchmark Brent crude trading at about $52 a barrel — less than half its price in mid-2014 — producers remain under severe economic pressure. After OPEC’s surprise reversal of its policy of pumping without constraints in Algiers last month, the group was seeking cooperation from other nations, in particular Russia.
Saudi Arabia’s Energy and Industry Minister Khalid Al-Falih left Turkey before scheduled talks between OPEC producers and other nations outside the group. While countries including Russia, Azerbaijan, Algeria and Venezuela will still meet in Istanbul Wednesday to “compare notes,” according to OPEC Secretary-General Mohammed Barkindo, most of the work was already done.
OPEC had already secured the backing of Putin, who said the world’s largest energy exporter was “ready to join in joint measures to limit output.” State-run Rosneft PJSC, Russia’s largest producer, said it will comply if the Kremlin decides to limit output, according to the TASS news agency. Lukoil PJSC, the second biggest, said all oil companies in the country would unify behind a deal to either freeze or cut.
Challenging Implementation
Al-Falih and his Russian counterpart Alexander Novak reiterated a commitment to work together to improve the oil market and will meet again for further consultations in Riyadh later this month, according to an e-mailed statement from the Saudi Energy Ministry.
OPEC agreed in Algiers to have a new production range of 32.5 million to 33 million barrels a day, compared with record output of 33.75 million barrels a day in September. While the broad principles of the deal are in place, its implementation could be challenging.
The details of how supply will be reduced need to be finalized by the group’s next meeting in Vienna on Nov. 30. Nigeria, Libya and Iran are exempt from making cuts because their production has been curtailed by violence or sanctions. A committee has been established to work out how other members will share the burden, meeting for the first time in Vienna on Oct. 28 to 29, Barkindo said.
Secondary Sources
OPEC’s internal disagreements have so far focused on an average of crude-production estimates from news organizations and other forecasters that appears in the group’s monthly report, commonly know as “secondary sources.” These data could determine the production target for each country when the Algiers accord is implemented, and Venezuela and Iraq have both argued the estimates are too low.
Before OPEC’s committee meets at the end of the month, Barkindo may travel to Baghdad for further discussions, he said on Tuesday.
Brent crude, the international benchmark, has risen 14 percent since the Algiers accord, closing at a 15-month high of $53.14 a barrel on Monday.
“There has been a clear shift in probabilities of an agreement, to well over 50 percent with everyone including Russia on board rhetorically,” Citigroup Inc. said in an e-mailed note. “The costs of failure and the impact on pricing will likely only increase, adding more pressure on the group to succeed.”
That doesn’t mean it’ll be easy for these countries to actually curb output, said Hasan Qabazard, who was OPEC’s head of research from 2006 to 2013.
“I was in Oran, Algeria in 2008 when Russia pledged a cut of 400,000 barrels a day and Azerbaijan pledged 150,000,” he said in a phone interview. “But they didn’t deliver their promises.”
Source: Bloomberg
