OPEC and its allies sent mixed signals about whether they were considering deeper production cuts, fanning oil-market speculation before crucial talks in Vienna this week.
Iraq’s Oil Minister Thamir Ghadhban reiterated his view that the group should deepen its curbs by 400,000 barrel a day beyond the existing 1.2 million supply reduction.
Upon arrival in the Austrian capital, he told reporters that he believed Saudi Arabia, OPEC’s defacto leader, also supported the move.
However, an earlier meeting of the group’s Joint Technical Committee, which advises ministers but doesn’t make final decisions, ended without any discussion of steeper cutbacks, said delegates, who asked not to be named because the talks were private.
“It has been calculated that the 1.2 million has proved not enough so an additional cut is required,” Ghadhban said. “This is not yet final, it’s very much subject to the members countries.”
An alliance between the Organization of Petroleum Exporting Countries and several non-members including Russia and Kazakhstan has been restraining output since the start of 2017 in order to eliminate a surplus and bolster crude prices. The agreement expires at the end of March and ministers must decide what to do next.
In 2020 the group faces slowing demand growth and another huge expansion in rival production, which together could create another oversupply that drives international prices back down toward $50 a barrel. Despite this, the vast majority of analysts and traders surveyed by Bloomberg considered an extension to be the most likely outcome of ministerial talks on Dec. 5 to 6.
One reason for skepticism that deeper cuts are imminent is Iraq’s status as one of the worst laggards in the OPEC+ agreement. For almost three years it has consistently exceeded its quota, actually increasing output since the latest iteration of the accord was agreed in December 2018, according to data compiled by Bloomberg.
In reality, OPEC+ has already gone deeper than the pledged 1.2 million cut due to a combination of voluntary and involuntary measures. In October, the JTC concluded that group exceeded that target by about 40%, according to the delegates.
Saudi Arabia, wishing to lead by example, has pumped well below its quota for the duration of the agreement. Other nations including Angola, Venezuela and Mexico have simply been unable to sustain their production due to industry mismanagement or years of under-investment.
That’s offset lax implementation of output reductions by several other nations, notably Iraq, Nigeria and Russia. There are signs that this week’s meeting could deliver a showdown between Saudi Arabia and these laggards, because the kingdom is no longer willing to bear the extra burden.
Russian Energy Minister Alexander Novak appeared to preempt this debate, saying he would ask to discuss a rule change that would exclude his country’s production of a light oil called condensate from its target. Russia has exceeded its quota in all but three months of 2019, but that accounting change would bring output in line with its target.