Published: Fri, December 06, 2019
Markets | By Otis Pena

OPEC fails to pin down new output target after marathon talks

OPEC fails to pin down new output target after marathon talks

For Russia, which has achieved its targeted cuts in just three months this year, full compliance got easier on Thursday as OPEC agreed to exclude a very light oil called condensate from the country's quota. Saudi Arabia, who is rumored to have had enough of OPEC-and OPEC+'s-cheating members, has effectively carried the group to significant overcompliance month after month, making up for noncompliant members including Iraq, Russia, and Nigeria. Russian Energy Minister Alexander Novak, whose country is not part of OPEC but joins part of the meeting to coordinate production, said Thursday that the group was discussing a further cut of 500,000 barrels a day "in order to safely go through the seasonal demand trough in the first quarter 2020".

Oil gained on December 4 ahead of an expected extension to production curbs by OPEC and its allies, with further support from industry data showing a larger than forecast drop in USA crude stockpiles.

It may resort to even deeper cuts to shore up global oil prices against a flood of new production into the market from countries outside the cartel, and a slowdown in the world's appetite for crude.

The cuts for the OPEC+ group which now stand at 1.2 million bpd, will be increased to 1.7 million bpd, the sources said, per the monitoring committee's earlier recommendation, which OPEC today approved.

OPEC watchers had expected the OPEC+ group to extend cuts at least until June 2020 but non-OPEC Russia objected to the move. "Soft demand and growing supplies from the US, Canada, Brazil and the North Sea are set to keep the oil market amply supplied", he said.

OPEC+ has agreed voluntary supply cuts since 2017 to counter booming output from the shale fields of the United States, which has become the world's biggest producer.

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According to Rystad Energy's estimates, the global oil market will be fundamentally oversupplied to the tune of 0.8 million barrels per day in the first half of 2020. Iran, which is exempt from making cuts because of USA sanctions, will support any decision by the other members of the group, Oil Minister Bijan Namdar Zanganeh told reporters.

Brent crude oil hovered near $63 per barrel Thursday.

OPEC is likely to shoulder 340,000 bpd in fresh cuts and non-OPEC producers an extra 160,000 bpd, one source said on Friday. That might change if oil and gasoline prices rise ahead of the U.S. presidential election set for November 2020.

That's too low for most OPEC members to balance their budgets, and would make an unfortunate epilogue for the record-breaking initial public offering of Saudi Arabia's state oil company, Aramco.

OPEC sources have said Riyadh was pressing fellow OPEC members Iraq and Nigeria to improve their compliance with quotas, which could provide an additional reduction of up to 400,000 bpd.

"The kingdom has explicitly communicated to OPEC that it will no longer tolerate under-compliance", said Amrita Sen, chief oil analyst at Energy Aspects Ltd. said before the committee meeting.

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