World, Economy, Middle East

Saudi Arabia unsure of reaching OPEC deal on oil cuts

Group will meet Friday with OPEC+ nations to discuss contribution on curbing supply

06.12.2018 - Update : 06.12.2018
Saudi Arabia unsure of reaching OPEC deal on oil cuts

By Ovunc Kutlu


Saudi Arabia said Thursday it is unsure if a deal will be reached with fellow OPEC members on oil output cuts.

After the conclusion of 175th meeting of the OPEC Conference in Vienna, Saudi Energy Minister Khalid al-Falih told reporters that the kingdom is "not confident" an agreement on oil output cuts can be reached.

An OPEC press official told reporters negotiations will continue Friday between the 15-member organization and non-OPEC oil producing allies, which include Russia and nine countries, to discuss how much they can contribute to supply cuts.

The participation of Russia, the world's second largest crude producer, in the deal remains a question as Moscow is reluctant to lower its output.

Russian Energy Minister Aleksandr Novak was in Vienna earlier Thursday, but had to leave early in order to participate in the Eurasian Economic Union meeting in St. Petersburg, Russia.

Novak is expected to return to Vienna on Friday to join the talks.

Two difficult decisions for the cartel and its allies, known as OPEC+, are the quantity supply cut and how members of the group will divide the amount of oil cuts among themselves.

A higher cut in output means lower revenues from oil exports for producing countries whose economies are highly dependent on sales.

Libya and Nigeria were exempt from earlier cuts, while Iran asks not to participate in any deal that would reduce its oil output.

Iranian Minister of Petroleum Bijan Zangeneh said earlier Thursday his country should be excluded from any decision that involves curbing crude production as Tehran faces major decline in crude exports due to sanctions of Washington.

Al-Falih said before the start of the conference that a 1 million barrels per day (mbpd) oil cut would be sufficient for OPEC+.

The kingdom is also under pressure by the U.S. President Donald Trump who does not want OPEC to cut production and prefers low oil prices for American consumers.

"Hopefully OPEC will be keeping oil flows as is, not restricted. The World does not want to see, or need, higher oil prices!" Trump wrote Wednesday on social media.

Although Trump has been critical of OPEC for years whenever oil prices were high, he recently affirmed his support of Saudi Arabia despite the kingdom’s admission it murdered journalist Jamal Khashoggi.

With pressure from Trump, Riyadh could propose OPEC+ lower production by 1 mbpd not to aggravate the U.S. president. But that could force it to lose credibility within the cartel, its allies and global oil market, according to experts.

OPEC+ lowering output by 1 mbpd would be less than market expectations, which estimates a cut of 1.2 mbpd to 1.4 mbpd in order to boost prices.

The group agreed in November 2016 to cut oil production by 1.8 mbpd to rid oversupply in the market and raise oil prices, and extended that until the end of 2018.

As oversupply rises with the U.S., however, Russia and Saudi Arabia pumping oil at record levels, crude prices slumped more than 30 percent in the last two months.

On the demand side, the trade dispute between U.S. and China threatens global economic growth and could lead to lower demand in 2019.

Crude prices extended losses Thursday on concerns about oversupply and low demand expected next year.

International benchmark Brent crude was trading at $59.53 at 12.50 p.m. EST (1750GMT), and American benchmark West Texas Intermediate (WTI) was at $51.18. Both benchmarks were down more than 3 percent for the day.

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