OPEC ended talks in Vienna without a deal on oil production cuts, with the size of Russia’s contribution remaining a sticking point before further talks Friday.
Saudi Energy Minister Khalid al-Falih said he wasn’t confident of an agreement after discussions of a 1 million barrel a day output reduction concluded without an agreement. That left the oil market dangling in uncertainty before non-OPEC allies join the group for a second day of talks Friday.
Earlier Thursday, ministers were discussing a proposal to curb their oil output by about 1 million barrels a day, which would go a little further than Saudi Arabia’s preference for a moderate reduction that wouldn’t shock the market.
Delegates said details of how to share that out and the extent of the contribution from non-OPEC allies remained unresolved.
The group is under pressure after a collapse in oil prices last month.
Saudi Arabia, the largest producer in the cartel, is seeking to walk a fine line between preventing a surplus and appeasing U.S. President Donald Trump. Achieving that balance was proving elusive, with one delegate predicting that the size of output cuts would remain unresolved until Friday, when allies including Russia join the talks.
Oil in London tumbled as much as 5.2 percent to $58.36 a barrel, before paring losses to $59.34 at 5:07 p.m. local time.
ELUSIVE AGREEMENTIn one proposal being considered at talks Thursday, OPEC could cut its own output by 900,000 to 1 million barrels a day and then seek further curbs from non-OPEC partners, one delegate said, asking not to be identified as an agreement hasn’t yet been reached.
Ministers are studying participation levels for such a proposal before potentially putting it to key ally Russia, the delegate said.
That would be a more bullish outcome than Falih had hinted at early in the day, when he said a reduction of about 1 million barrels a day from the entire OPEC+ coalition should be adequate and “certainly we don’t want to shock the market.”
The summit in Vienna wasn’t the only story Thursday. As ministers sat down at the headquarters of the Organization of the Petroleum Exporting Countries, Russian Oil Minister Alexander Novak flew to St. Petersburg to meet President Vladimir Putin to decide on their country’s contribution. If the group’s most important ally in the OPEC+ alliance decides to make a sizable cut, the cartel would follow up.
NO DEAL?Before the six hours of discussions in the Austrian capital Thursday, Falih had said that “if everybody is not willing to join and contribute equally, we will wait until they are.”
Saudi Arabia, OPEC’s de facto leader, has made clear that it won’t shoulder the burden of trimming production alone. Its cooperation with Russia shows how much OPEC has changed since 2016, when the two countries ended their historic animosity and started to manage the market together. The alliance has transformed OPEC into a duopoly in which Russia, which isn’t a formal member of the cartel but part of the production-cuts alliance, is asserting its power.
While Middle Eastern producers are desperate to reverse the recent slump in prices to pay for government spending, sensitivities are different in Russia, where the government is running a budget surplus and a weak ruble mitigates the impact of lower prices. The government is concerned about the impact of higher prices on Russian consumers, stoking discontent with economic policy, according to one Kremlin official.
Although Russia, the largest producer in the OPEC+ group, has agreed to a cut in principle, the eventual size of its contribution remains undefined and will be key to putting together the final deal.
In private conversations earlier this week, OPEC delegates said that Saudi Arabia had favored a Russian cut of about 300,000 barrels a day, but Moscow was seeking a smaller reduction of about 150,000, people familiar with those talks said.
“The impression that the group can’t really come to a decision without first checking with Moscow is going to be difficult for some members to swallow,” said Derek Brower, a director at consultant RS Energy Group. “The market won’t care if tomorrow they manage a sizable cut with proper metrics, but that’s still a big if.”
OPEC is also contending with vociferous opposition from the U.S. president, who’s taken to using his Twitter account to berate the group’s policies and sees low oil prices as key to sustaining U.S. economic growth.
While ministers met in OPEC’s Vienna headquarters Wednesday, Trump tweeted that the “world does not want to see, or need, higher oil prices!”
POSSIBLE EXEMPTIONSIran is currently subject to U.S. sanctions and as such won’t participate in any curbs, the country’s Oil Minister Bijan Zanganeh said.
Whether to exempt Iran from making any cuts was one sticking point in the meeting, a delegate said. OPEC ministers are also discussing whether to exempt Libya and Venezuela from making production cuts, another delegate said.
The last time the OPEC+ group agreed to curtail output, in late 2016, it settled on a combined 1.8 million barrel a day cut. In preparatory meetings ahead of this week’s summit, delegates had said a cut of as much as 1.3 million barrels a day next year is needed as demand growth slows and U.S. shale production surges.
Resolving the group’s internal differences and convincing a skeptical oil market that they’re serious about preventing a new supply glut in 2019 would require ministers to conclude weeks of debate and settle on a final figure. “Some countries will struggle because their economies are very constrained” and Nigeria itself could only manage a small cut, Nigerian Oil Minister Emmanuel Kachikwu said in a Bloomberg television interview Thursday morning.