OPEC considers deeper output cuts as global growth slows

  • 5 Dec 2019

Prices have held relatively steady since the last OPEC meeting, with a barrel of Brent crude hovering around the $60 mark, apart from a spike in September sparked by attacks on Saudi oil installations.

In this Dec 13, 2009 file photo, Iraqi workers are seen at the Rumaila oil refinery, near the city of Basra, 340 miles (550 kilometres) southeast of Baghdad, Iraq. ( AP )

Major oil exporting countries met in Vienna on Thursday amid speculation they want to deepen output cuts as slowing global economic growth and abundant reserves put pressure on oil prices.

The current cuts of 1.2 million barrels per day from October 2018 levels were originally fixed in December last year and were already extended at OPEC's last meeting in July.

But before OPEC members began their delayed main meeting, Russian Energy Minister Alexander Novak said a preliminary gathering of ministers had recommended an additional cut of 500,000 barrels per day be considered for the first quarter of 2020.

Some observers say fresh production cuts and a boost to prices might suit Saudi Arabia as it launched the landmark IPO of its national oil company Aramco.

The initial stock offering was the largest ever, raising $25.6 billion, two sources told AFP.

On Wednesday Prince Abdulaziz bin Salman told reporters he was expecting a "successful meeting" as he arrived for his first OPEC gathering as Saudi oil minister.

Other oil ministers have been unusually tight-lipped.

Earlier Thursday, the Saudi prince — half-brother of the kingdom's powerful Crown Prince Mohammed bin Salman — met Novak, according to a statement by Russia's Energy Ministry.

Russia is the world's second-biggest producer and since late 2016 has been part of the so-called OPEC+ grouping.

However, Russian officials admitted on Tuesday that the country had missed its monthly target for cuts in November for the eighth time this year.

Iraq and Nigeria — Africa's biggest producer — have also regularly been exceeding their quotas.

If there are to be further cuts, there are "still lots of details to be ironed out on how that might be apportioned," Argus Media analyst David Fyfe told AFP.

"The extent to which it represents real cuts and/or improved compliance" was also unclear, he added.

Journalists and police officers stand outside the Organisation of the Petroleum Exporting Countries (OPEC) headquarters in Vienna, Austria, December 5, 2019.(Reuters)

'No climate change deniers' 

Ahead of Thursday's meeting, dozens of climate change activists gathered outside the OPEC headquarters in a silent protest, holding banners that read: "Burn injustice not oil" and "Fossil fuels have got to go."

OPEC Secretary-General Mohammed Barkindo — who called climate change activists the "greatest threat" to the oil industry during the organisation's last meeting in July — received several of them, assuring that "there are no climate change deniers in OPEC."

OPEC members may well be tempted towards production cuts by a forbidding global economic context.

A trade war with the US is slowing growth in China, normally an avid consumer of oil, and the European economy is barely expanding.

Meanwhile, output by oil producers outside OPEC is breaking records: the US has been the world's biggest producer since 2018, Brazil and Canada have also increased output and others such as Norway are planning to do so.

According to latest US estimates, its total domestic stocks now stand at an enormous 452 million barrels.

Analysts say that, taken together, these factors will leave OPEC little room for manoeuvre if it wants to fulfil its stated aim of securing "fair and stable prices for petroleum producers."

Effect on prices 

Prices have held relatively steady since the last OPEC meeting, with a barrel of Brent crude hovering around the $60 mark, apart from a spike in September sparked by attacks on Saudi oil installations.

While this is a comfortable price for the likes of Russia, whose 2019 budget is predicated on a price of around $42 a barrel, it is too low for countries such as Saudi Arabia.

On the eve of the summit, oil prices finished on a high, with Europe's benchmark Brent up by 3.6 percent and its US equivalent WTI 4.2 percent higher.

Saudi Arabia has stayed within the quota it was assigned under the current deal and in September urged its partners to do the same.

Meanwhile, the Aramco IPO was delayed several times, with investors baulking at its eventual valuation of around $1.7 trillion, already less than the $2 trillion Saudi authorities were hoping for.