OPEC+ producers will closely watch Iran and Venezuela as potential supply disruptions from these countries will play a significant role in the cartel's output cut decision at its semi-annual meeting in Vienna on Thursday.
Dubbed as OPEC+, the cartel and other producing countries, including Russia, Kazakhstan and Mexico, will convene with the aim of balancing the oil market with cuts to their output.
OPEC+ is expected to decrease total production by 1 million barrels per day (mbpd), Caroline Bain, chief commodities economist at London-based Capital Economics, told Anadolu Agency on Wednesday.
She said the cartel's heavyweight Saudi Arabia is estimated to lower its production by 0.5 or 0.6 mbpd, while non-OPEC's biggest producer Russia is anticipated to trim its output by 0.3 mbpd or 0.4 m mbpd.
However, these cuts are "probably not enough to have a big and sustained rally in the prices," Bain said, adding that supply disruptions that could come from Iran and Venezuela next year would play a role in determining oil prices.
"It is still very unclear what the impact of U.S. sanctions on Iranian production and exports is going to be. We can see a bigger drop in Iranian production, and of course Venezuelan production is also on a long-term decline. There's always the risk of outages in Libya, Nigeria and Angola," she explained.
Washington has begun reimposing sanctions on Tehran on Nov. 5, but gave eight countries a 90-day waiver to continue buying Iranian crude.
Venezuela's production declined to 1.17 mbpd in October, from 1.21 mbpd in September. Output is down 45 percent from the average of 2.15 mbpd in 2016, according to OPEC's Monthly Oil Market report in November.
If Venezuela's production continues to decline, and if the U.S. does not extend its waiver for Iranian crude imports, then supplies on the global market could be easily withdraw pushing oil prices higher.
-A "modest" cut
Most recently, both Saudi Arabia and Russia increased their oil production to record high levels of 11.2 mbpd and 11.6 mbpd, respectively. Despite the cuts that will come on Thursday, both countries' oil production is likely to remain at a very high level.
OPEC+ members could make merely modest cuts to their outputs in order to prevent losing oil revenues, given that Iran and Venezuela's production levels are surrounded with uncertainty.
Saudi Arabia, Russia and other producing nations could play a more strategic waiting game by determining the supply gap from Iran and Venezuela next year, and gradually increase their compliance for output cuts each month in order to raise prices.
"The Saudis will emphasize compliance, as many OPEC members have been producing above their quotas," Riccardo Fabiani, a geopolitical analyst at London-based energy market consultancy Energy Aspects, told Anadolu Agency.
"The markets expect a cut of more than 1 mbpd, but it will depend on the individual quotas," he said.
- The Trump effect
Saudi Arabia, however, also has a good reason to maintain high oil production and keep prices low -- to avoid aggravating U.S. President Donald Trump.
"Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!" Trump wrote on social media on Nov. 12. Trump thanked Saudi Arabia on Nov. 21 for keeping prices low and wrote on Twitter: "let’s go lower!"
The president also showed his support for the kingdom on Nov. 20 despite the killing of journalist Jamal Khashoggi.
Bain said she believes that is why Saudi Arabia will choose to have a "modest" cut in its output.
"Saudis are not in a globally strong position at the moment because of the shocking murder of Khashoggi. So, it has to follow a quite delicate path -- not cutting by so much to really anger President Trump, but also not to lose its credibility within OPEC," she explained.
Saudi Arabia has recently been the most influential actor in OPEC. The kingdom managed to sway OPEC members on issues relating to Iran and Qatar.
Qatar has also been under a blockade by the Saudi-led coalition of Egypt, Bahrain, and the United Arab Emirates since June 2017, and announced Monday that it is leaving the cartel after 57 years.
The announcement was a blow to the cartel, and added another layer of doubts about its unity.
OPEC has been losing its credibility since its choice of not intervening in plummeting oil prices in 2014 -- a strategy led by Saudi Arabia.
The Saudis strategy has been costly for both the kingdom and OPEC members, as they are losing market share since the third quarter of 2016 to U.S. shale oil producers.
- Saudis aims for oil at $70 per barrel
Although Saudis want to keep Trump happy, it still needs high oil prices to support its economy and to balance its budget.
"For the Saudis, the price floor is $70 [per barrel], but in the current situation the primary goal is reverse the current negative trend and bring prices steadily above $60 [per barrel]," Fabiani said.
"The ultimate goal remains for oil prices to trade between $70 and $90 [per barrel]. This price range is sufficient for them to avoid any major economic shock," he added.
With Saudi and Russian crude output at all-time highest levels, and U.S. crude production surpassing those countries to a record high level of 11.7 mbpd in November, international benchmark Brent crude fell from $86 a barrel on Oct. 3 to $57.50 a barrel on Nov. 29, posting a 33 percent decline.
By Ovunc Kutlu