OPEC doesn’t show its hand in oil supply poker game with Russia

oil prices OPEC Russia crude oil exporter saudi arabia
PIX: Kay Nietfeld/dpa

The Organization of the Petroleum Exporting Countries (OPEC) ended its talks on a possible oil production cut without announcing any results on Thursday, ahead of Friday’s negotiations that are meant to bring Russia on board for a broader supply deal.

Saudi Energy Minister Khalid al-Falih told reporters Thursday evening that the reduction would be “probably” in the range of 1 million barrels a day (bpd).

He added that it was not certain whether an agreement can be achieved the next day with a Russia-led group of non-OPEC countries.

The 15 OPEC members and the additional 10 countries, which form the so-called OPEC-plus group, want to further reduce their supply as a way to bolster prices, after the benchmark price for European Brent oil plummeted from 86 dollars per barrel in October to below 59 dollars Thursday.

Saudi Arabia wants Russia to shoulder a significant portion of the cut.

“It’s a tactically good decision to not come out with a number today,” German analyst Jan Edelmann of HSH Nordbank told dpa in Vienna.

If Russia and the other non-OPEC countries knew ahead of Friday’s talks how much OPEC is willing to throttle its oil wells, they could adjust their negotiating tactics at the cost of OPEC, he explained.

However, the immediate market reaction to Thursday’s inconclusive outcome was negative.

Having briefly recovered to above 60 dollars during the day, Brent oil took a new hit and shed about 1.70 dollars in the evening, after OPEC cancelled its scheduled press conference.

Analysts say that at least 1 million barrels have to be removed from the market if the OPEC-plus want to counter the downward price trend.

Saudi Arabia, OPEC’s largest producer, has tried balancing the interests of its US ally and other major oil consumers on the one hand, and its need for higher oil revenues on the other.

US President Donald Trump tweeted ahead of the Vienna talks that “the World does not want to see, or need, higher oil prices!”

Iranian Oil Minister Bijan Namdar Zangeneh, whose country is under a US oil embargo, rejected this US intervention.

“It is the first time that the president of the United States instructs OPEC what to do,” Zangeneh criticized.

Iran is not opposed to a production cut by the OPEC-plus, he said, while stressing that his country must be exempted from such a move because of the US oil embargo against Iran.

However, Zangeneh did not confirm whether all of the other countries have already agreed to such an exemption.

Saudi Arabia’s disputes with rival OPEC members Qatar and Iran have created rifts within the oil cartel.

Qatar announced its exit from OPEC this week, while Iran has complained that Riyadh is colluding with Washington to enforce the US embargo on Iranian oil.

The OPEC-plus countries, which account for nearly half of global oil supplies, agreed on a first output cap in late 2016.

However, the benchmark price for European Brent oil has plummeted as it became clear in recent weeks that Washington’s Iran sanctions are less strict than expected.

In addition, major producers like Saudi Arabia and Russia pumped more oil, leaving the market oversupplied. -DPA

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