OPEC+ Making Headway

OPEC+ is making headway in its negotiations on oil-output cuts, raising the odds that Thursday’s meeting can salvage a deal after failed talks earlier in the week.

After days of direct negotiations between the group’s heavyweights -- Russia, Saudi Arabia and the United Arab Emirates -- discussions are now focusing on proposals for gradual easing of output cuts over several months, said a delegate. It’s unclear whether the tapering would start in January, or would be delayed to later in the first quarter.

The proposals, if accepted by the whole OPEC+ group, would modify the current deal that allows 1.9 million barrels a day of fresh crude supplies to be added to the market from Jan. 1. The person, who asked not to be named because the information was private, did not specify whether the proposals would return that same volume of production over a longer period, or a different amount.

The Organization of Petroleum Exporting Countries and its allies need to hash out an agreement on supply levels for next year. Initially, talks had centered on delaying the January production hike by three months, but that option ran into obstacles on Monday amid a clash between Saudi Arabia and the UAE. Since then, delegates have been trying to find a way forward.

“Ministers are inching closer to a compromise that should break the impasse,” Energy Aspects Ltd. co-founder Amrita Sen said in a note. “OPEC+ officials are debating a more limited adjustment to the current deal than the proposed three-month delay.”

Russian Position

A gentler tapering of the production cuts could offer a potential compromise after days of tense talks, offering something to members that are concerned about the fragility of the market, and also to nations that are impatient to raise production. The Russian government, after internal talks with its own oil companies, is ready to agree to a gradual easing of supply curbs within the first quarter of 2021, said a person familiar with the discussions.

OPEC+ is due to meet for online talks at 2 p.m. Vienna time on Thursday, after a two-day delay to give countries more time to reach a consensus.

OPEC+ rescued the oil market this year from an unprecedented slump, slashing production as the pandemic crushed demand. While crude has surged in recent weeks, a new wave of virus infections is hitting the global economy. Some members believe demand is still too fragile to absorb additional barrels.

Fractious talks earlier this week raised the specter of the deal falling apart -- that would sink prices and batter an industry that spans from tiny nations like Gabon to corporate giants such as Exxon Mobil Corp. Oil was little changed at around $45 a barrel in New York, after rising 1.6% on Wednesday.

The intensity of the fight between Saudi Arabia and the UAE took OPEC-watchers by surprise, as the pair have long been staunch allies. But Abu Dhabi has been pursuing a more independent oil policy and wants to pump more.

Over the summer, Abu Dhabi’s impatience led it to casting aside its usual obedience to cartel discipline, and pump more crude than its quota allowed. The Saudis were furious, and summoned UAE Energy Minister Suhail Al-Mazrouei to Riyadh for a public dressing down.

While the UAE subsequently atoned, people familiar with its oil policy say Abu Dhabi believes the current quota is unfair, and is keen to make the most of massive investments in production capacity. It’s also planning a new regional price benchmark based around its Murban crude variety, which needs the kind of volumes that clash with production limits.

If a deal is eventually crafted, it will be scrutinized for its ability to keep the coalition together and disciplined. Tensions are expected to reemerge next year.

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