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Tensions over quotas and cuts delay Opec+ meeting

Saudi minister of energy Prince Abdulaziz bin Salman at an Opec meeting in June. It is thought Opec+ members cannot agree on further output cuts Reuters/Leonhard Foeger
Saudi minister of energy Prince Abdulaziz bin Salman at an Opec meeting in June. It is thought Opec+ members cannot agree on further output cuts
  • No reason given for delay
  • Friction over cuts suspected
  • Oil rallies from 4% loss

Opec+ has postponed its ministerial meeting from this weekend to November 30 amid tension over members’ production levels and plans for further output cuts, industry experts said. 

Oil prices extended losses by more than 1 percent on Thursday. Brent traded at $80.93 a barrel at 9.38 GST after a steep 4 percent decline on Wednesday. US WTI crude fell to $76.25 after tumbling 5 percent last night.

Opec announced the delay of the meeting on its website on Wednesday without giving a reason for the decision.

Analysts and industry experts expect Opec+ to roll over the voluntary output cuts through 2024 or even deepen them amid growing uncertainty on the global economic outlook and softening oil demand.

However, countries cannot agree on who will bear the burden of further cuts.

“Saudi Arabia and Russia will have to roll over their additional cuts, totaling 1.3 million barrels per day (bpd), or find a way to redistribute them across the wider group,” Vandana Hari, a Singapore-based founder of Vanda Insights, a provider of global oil markets macro-analysis, told AGBI last week.

Morgan Stanley and Goldman Sachs Bank analysts expect Opec+ voluntary cuts to be unchanged or deeper. 

Hari said that the realignment of some member countries’ baselines would be a potential source of friction.

“It could become another test for the cohesion of Opec+.”

Production level pressure

Bill Farren-Price, a senior research fellow at the Oxford Institute for Energy Studies, said: “Tensions may be related to excessive production levels of some members. There’s a feeling that the discipline is beginning to fray.”

Russian and Iranian exports, as well as Iraqi production, have risen recently.

The pressure is also on African countries: “Once Nigeria and Angola accept their new lower baselines, they may be asked to participate in the cuts, along with the other members that did not join in the last round,” Hari said.

The meeting of the Saudi-led Opec bloc of 13 countries and the Russian-led non-Opec group, which has 10 participants, comes amid concerns on growing supply from producers like the US, Canada, Guyana, and Brazil. Washington has loosened sanctions on Venezuelan oil, all of which brings more challenges for Opec.

“Non-Opec supply is likely to increase by 1.4 million bpd next year, enough to meet all global demand growth,” Morgan Stanley said in Tuesday’s note.

Morgan Stanley assumed Saudi Arabia would extend voluntary cuts further to the end of next year’s second quarter, with production rising only gradually during the second half but staying below its formal Opec quota of 10.5 million bpd in that period.

The International Energy Agency expects the oil market to shift into surplus in 2024 – implying lower prices – on the back of slowing growth in demand.

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