Opinion

S&P Global Platts FACTBOX: OPEC Oil Output Negotiations Tense as Seminar Starts in Vienna

Posted by OilVoice Press - OilVoice

21-Jun-2018


OPEC talks over the future of its production cut agreement are on a knife edge, as ministers gather in Vienna ahead of Friday's critical meeting.

The producer bloc hosts a two-day seminar starting today, a conference featuring ministers and CEOs of major oil companies, including BP, Total, Eni, Saudi Aramco, ADNOC and others, as speakers.

S&P Global Platts news feature: OPEC Influencers interactive chart

The seminar also serves as a venue for bilateral and multilateral talks, where OPEC ministers hope to work out a compromise over output quotas that some members, notably Saudi Arabia, want to ease.

The deal calls on OPEC and 10 non-OPEC partners, led by Russia, to 1.8 million b/d in supply cuts through the end of the year.

Here is the state of play in the OPEC negotiations:

WHAT PROPOSALS ARE ON THE TABLE?

Russia, whose domestic oil companies are champing at the bit to loosen the taps, has suggested the OPEC/non-OPEC coalition raise quotas by 1.5 million b/d for a few months, with a review after the peak summer demand season ends.

Energy Minister Alexander Novak, who will only be in Vienna briefly Thursday and then again on Saturday, has said such an output boost is needed to prevent global oil inventories from draining to critical levels.

Saudi Arabia appears on board with pulling back on quotas, but is said to want a smaller amount, perhaps 300,000-600,000 b/d, to fill any supply gap left by Venezuela's continued decline and US sanctions on Iran, as well as to ease concerns from US President Donald Trump, a key ally, on high oil prices.

Saudi energy minister Khalid al-Falih has not spoken to reporters since arriving in Vienna early Wednesday, but Prince Abdulaziz bin Salman, the kingdom's minister of state for energy affairs, told the OPEC Seminar that Saudi Arabia is "committed to ensuring the availability of supplies."

ARE ANY SIGNS OF CONSENSUS EMERGING?

Iran, facing US sanctions on its oil sector that go into force November 5, remains adamantly opposed to raising quotas, oil minister Bijan Zanganeh told reporters Tuesday.

But he appeared to create an opening for a deal, saying that with OPEC overcomplying with its cuts by about 1 million b/d, Iran would have no objection to members raising production to their full individual allocations, as long as they don't take market share from others.

"I cannot reject it. We agreed on 100% compliance, not more," he said.

OPEC produced 31.90 million b/d in May, according to the latest S&P Global Platts OPEC survey. That's about 840,000 barrels below its ceiling of about 32.74 million b/d, when every country's quota is added up.

But Venezuela on its own was 610,000 b/d below its quota in May, according to the survey, and given the country's severe economic crisis, it is unlikely to be able to raise its output. So, if Venezuela is excluded, the rest of OPEC has 230,000 b/d of breathing space below the ceiling.

Whether that amount would be amenable to OPEC members seeking significant output boosts remains to be seen.

COULD SAUDI ARABIA AND RUSSIA DECIDE TO RAISE OUTPUT ON THEIR OWN?

In the absence of a deal, there is nothing preventing any member from breaking its production quota. There is no enforcement mechanism on the cuts, beyond diplomatic pressure exerted by a Joint Ministerial Monitoring Committee - which Saudi Arabia chairs and Russia serves as alternate chair.

But Saudi Arabia may have more strategic reasons for wanting to keep the coalition intact, as the kingdom embarks on ambitious economic reforms that require higher oil prices to finance.

An OPEC in disarray would lead to doubts about Saudi Arabia's ability to maintain control of the oil market, particularly as it looks to list its state oil company Aramco publicly at long last.

HOW MUCH COULD OPEC RAISE PRODUCTION?

S&P Global Platts Analytics estimates OPEC spare capacity at 2.0 million b/d, of which Saudi Arabia holds the vast majority.

"If Saudi Arabia production increases materially, OPEC spare capacity would be left very tight," inhibiting the bloc's ability to respond to supply disruptions, Platts Analytics said in a recent note to clients.

Whatever spare capacity Saudi Arabia may have, its highest-ever monthly crude production was 10.66 million b/d in August 2016, according to Platts OPEC survey records. That is 650,000 b/d higher than it produced in May 2018.

OPEC's highest collective monthly crude output was 33.86 million b/d in November 2016, according to the Platts OPEC survey, though this includes Indonesia, which suspended its membership in December 2016, and does not include Equatorial Guinea, which joined in May 2017.

WHAT IS THE SCHEDULE AHEAD?

The OPEC Seminar continues through Thursday.

The JMMC monitoring committee will meet Thursday afternoon Vienna time.

OPEC's regular meeting is Friday, with non-OPEC participants in the production cut agreement joining on Saturday.

S&P Global PlattsOPECOilOutputViennaProductionRussiaSaudi ArabiaKingdom of Saudi ArabiaIran

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