Talks Resume on Oil Production Cuts Amid Covid Crisis

LONDON – OPEC and non-OPEC allies will resume talks on Thursday to flatten oil production policy for next year, seeking consensus on how to tackle weak demand amid a new wave of coronavirus cases.

OPEC and its partners, known collectively as OPEC +, are expected to extend oil production cuts of 7.7 million barrels per day at least until March 2021. However, talks were suspended on Tuesday. after it became clear that they had not been able to come to a compromise.

Oil ministers from the 23-member group, which is made up of some of the world’s largest crude producers, will reconvene for a virtual meeting on Thursday at 1 p.m. London time to try to find common ground.

In April, after days of protracted talks, OPEC + agreed to the largest cut in oil production in history. The record reduction of 9.7 million barrels per day began on May 1, but was then reduced to 7.7 million in August and OPEC + has announced plans to decrease further next year.

International benchmark Brent futures traded at $ 47.92 a barrel during morning trades, about 0.6% lower, while US West Texas Intermediate futures were at 44 , $ 93, down 0.8% for the session.

The two price contracts broke a multi-day losing streak in the previous session, closing higher on encouraging news from the Covid-19 vaccine. Oil prices remain more than 25% lower since the start of the year.

Saudi Arabia, the backbone of OPEC, is believed to be the main advocate for maintaining the current level of reduction until the end of the first quarter. However, some producers questioned this approach after a sustained rally in oil prices last month.

Analysts believe some non-OPEC allies, such as Russia and Kazakhstan, have called for a gradual increase in production brakes, as the UAE has apparently pushed for a strategy designed to improve compliance overproducing countries.

Speculation about a split between Saudi Arabia and the UAE earlier this week surprised some because of the UAE’s stature in OPEC. It is the group’s third producer and a close ally of the Gulf of Saudi Arabia.

“Surprisingly this time around, it was not a discord between Russia and Saudi Arabia that prevented the group from reaching a clear agreement on whether to delay the planned production increase,” said Ole Hansen, Head of Commodities Strategy at Saxo Bank, in a research note. .

“Instead, a perhaps more dangerous rift, from an OPEC stability perspective, has arisen between Saudi Arabia and the UAE, two GCC countries that normally speak with one voice. “

Hansen said failure to reach a deal on Thursday could lower oil prices “by several dollars,” before adding that the bank believes “the cracks will be fixed like anything other than a deal. postponement would be a huge goal. “

Russia and nine other non-OPEC countries have worked with the 13-member group to support oil prices in recent years. The group wields considerable influence in global energy markets, although it is no longer seen as the force it once was.

In recent months, OPEC + has sought to navigate its way through a historically tumultuous period, including an unprecedented collapse in oil prices, a massive shock in fuel demand amid the coronavirus crisis, a Saudi-Russian price war and Qatar’s departure from OPEC.

“OPEC + controls nearly 50% of global production,” Tamas Varga, senior analyst at PVM Oil Associates, said in a research note released Thursday. “This privilege, however, comes with a burden (and) it was laid bare this week.”

“It is much more difficult to find a compromise with 23 participants, whose objectives are not necessarily aligned, than with 13 countries”, he continued.

“Despite disagreements and divergent views, one thing seems certain: it is in the best interests of all parties involved to arrive at a mutually acceptable solution – sometimes choosing the least bad option is the only way out.”