OPEC and its allies are poised to debate the terms of price-boosting supply cuts on Friday, after the influential oil cartel failed to reach a consensus over production policy for the first time in almost five years.
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The 15-member organization will hold talks with allied oil-producing nations at its headquarters in Vienna, Austria on Friday. It comes after deep divisions in the energy alliance were laid bare at a closely-watched meeting on Thursday, with the group unable to agree on the terms of crude output cuts.
International benchmark Brent crude briefly climbed above $60 a barrel Friday morning, as OPEC delegates reportedly said the group would discuss a possible exemption from output cuts for Iran. U.S. sanctions against OPEC’s third-largest producer have already significantly reduced Tehran’s exports.
The cartel has agreed how many barrels it would aim to remove from the market in principle, two unnamed sources told Reuters Thursday. But, de facto OPEC leader Saudi Arabia was forced to delay making a final decision on how deeply it would cut production until after it meets with non-OPEC heavyweight Russia.
The meeting between OPEC and non-OPEC members comes at a time when the oil market is near the bottom of its worst price plunge since the 2008 financial crisis.
“OPEC is of course very strong when you think about their cooperation with Russia — that’s tremendously successful. But, you know, don’t expect miracles,” Johannes Benigni, chairman of JBC Energy Group, told CNBC’s Hadley Gamble on Friday.
When asked whether negotiations could continue into the weekend, Benigni said: “There will be a deal (today), I’m pretty convinced about that.”
The Saudis have been leading calls for the group to trim output, amid surging supply and fears that an economic slowdown will erode fuel demand. The oil-rich kingdom has previously indicated it wants the group to curb output by at least 1.3 million barrels per day (bpd).
However, Saudi Arabia’s Energy Minister Khalid al-Falih told reporters Thursday morning that an output cut of 1 million bpd would be sufficient for OPEC and its allied producers. That is in part because Alberta, Canada announced this week it would require producers to cut output by about 325,000 bpd to drain the province’s brimming crude stockpiles.
“For all the noise around Russia, the obstacles to Moscow and Riyadh agreeing a deal are not insurmountable in our view,” analysts at Energy Aspects said in a research note published Thursday.
“But even if a deal is agreed upon, communicating it properly to this fragile market will be imperative — a jumbled statement referring to some broad intention to prevent the market from being oversupplied will undoubtedly trigger a further sell-off in prices,” they added.
Oil prices have crashed around 30 percent over the last two months, ratcheting up the pressure on budgets in oil-exporting countries.
Ahead of the meeting, the likely outcome was OPEC and non-OPEC members would agree to a supply cut of around 1 million to 1.4 million bpd. As always though, the hard part for the energy alliance is not figuring out a number, but rather how the group divvies up the cuts.
Russia has appeared reluctant to sign off on a reversal in production strategy. The non-OPEC heavyweight has warned the energy alliance must tread carefully this week to ensure it does not change course by 180 degrees whenever it meets.
OPEC began capping supply in partnership with Russia and several other nations in January 2017 in order to end a punishing downturn in oil prices.
The alliance reversed course and agreed to hike output in June after it removed more barrels from the market than it intended, largely due to the ongoing freefall in Venezuelan output and supply disruptions in Libya.
— CNBC’s Tom DiChristopher contributed to this report.