Opec+ meeting delayed as split over oil production cuts deepens

The Opec+ group has delayed its talks by two days after a deepening split over whether to relax production cuts next month derailed hopes of a quick deal and exposed tensions among key producers.

Oil ministers, who began a virtual two-day meeting on Monday, pushed back the second stage of talks after Opec members failed to agree an extension of the existing cuts deal among themselves, ahead of a planned meeting with Russia and other allies outside the cartel a day later.

The group will now meet again on Thursday to allow more time for discussions, according to people briefed on the delay.

Key members of the alliance, led by Saudi Arabia, have urged caution in unleashing more barrels on to the market as the pandemic still rages. But the United Arab Emirates, the kingdom’s longstanding Gulf ally, has yet to sign off any extension.

The UAE, which came under fire this year for producing more than its allocated quotas, has since cut additional barrels to make up for the extra output. The country is now demanding others that overproduced do the same before it will agree to any extension, a person briefed on the matter said. Nigeria, Iraq, Russia and Kazakhstan are among other countries that pumped more than they should have this year.

“The UAE’s push to make an extension conditional on further commitments to catch up is seen by Saudi Arabia as unreasonable, especially as overall group compliance remains very strong,” said Amrita Sen at consultancy Energy Aspects.

Producers have been buoyed by a rally in oil prices that has lifted Brent crude, the international benchmark, by more than a quarter in the past month to nearly $50 a barrel.

Positive news on vaccine developments has raised hopes among oil producers that demand will eventually return to normal in 2021. But new lockdowns in Europe and rising case numbers in the US still pose a threat in the coming months for some delegates.

“These market conditions of 2020 are likely to continue in the first quarter of 2021 and therefore we should be cautious,” Algeria’s energy minister, Abdelmadjid Attar, told journalists ahead of the private ministerial talks on Monday. “The road to recovery is long and bumpy.”

Opec has worked with Russia and other oil-producing countries outside the cartel since 2016 to stabilise crude prices and bring supply and demand into balance in times of crisis.

The 23-member Opec+ group, which together produces more than half the world’s crude oil, agreed in April to record cuts of more than 10 per cent of global output — or just under 10m barrels a day — with plans to return barrels back to the market gradually as the global economy improved.

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Producers have eased the cuts to 7.7m barrels a day, but the scheduled return of a further 2m barrels a day in January has been seen as a step too far for some producers, with global oil inventories swollen and prices stuck between $40-$45 a barrel. That compares with $60-$70 a barrel before the pandemic.

Saudi Arabia, Opec’s de facto leader, has pushed to prolong the existing 7.7m barrels a day of cuts by at least three months.

It is still expected that producers will reach a deal. Still, without an agreement, traders are bracing themselves for the possibility of additional barrels being released into an already well supplied market. The delay risks unsettling oil markets with memories still fresh of the oil price war between Saudi Arabia and Russia in March, which led to a flood of supplies the last time they failed to agree a deal.

Iran’s oil minister, Bijan Namdar Zanganeh, warned ahead of Monday’s meeting that he did not expect discussions to go smoothly, indicating a possible split between some of the biggest producers in the group.

“Some are against extending the previous decision [on production cuts] and this makes the work difficult,” Mr Zanganeh told a reporter in Tehran, adding that those countries included the UAE, Russia and Kazakhstan.

Algeria’s Mr Attar later told state press, even as ministerial talks continued, that he saw consensus for an agreement among Opec members to extend the deal by three months.

But people familiar with the group’s thinking said there were still a number of outstanding points to be ironed out, including winning the full backing of countries such as Russia and the UAE.

The Kremlin said on Monday that the differences were not on the same level as earlier this year before a cuts deal was eventually agreed.

Additional reporting by Najmeh Bozorgmehr

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