By Abolaji Adebayo with agency reports
The upcoming meeting of the Organization of Petroleum Exporting Countries (OPEC) scheduled for Thursday might be tough as members are expected to have harsh policy talks amid concern that the efforts to rebalance the oil market might overshoot by creating a global deficit and spurring a further price rally.
“It will not be an easy meeting and we always look at various scenarios,” United Arab Emirates Energy Minister Suhail Al-Mazroui said on Tuesday in Dubai before leaving for the gathering of the OPEC in Vienna.
OPEC, Russia and nine other producers are cutting oil output by about 1.8 million barrels per day until March 2018, and on Thursday will discuss extending the deal.
The market had largely expected OPEC to prolong cuts until the end of 2018 but doubts have emerged in the last few days.
OPEC’s leader Saudi Arabia has signaled that it wants oil to trade at about 60 dollars per barrel as the kingdom prepares to list shares in its national oil champion Aramco and is still fighting a large fiscal deficit.
The Russian government also wanted high oil prices ahead of a presidential election in March 2018.
Officials in Moscow have voiced worries about pricier oil boosting the rouble, which could undermine the competitiveness of Russia’s economy.
As oil rallied above 60 dollars per barrel, U.S. producers aggressively hedged their future production, raising fears of another spike in shale output in the U.S., which is not participating in the global production curbs.
Goldman Sachs, one of the most active banks in commodity trading and oil producer hedging, said on Tuesday that the outcome of the OPEC meeting was uncertain.
“The absence of such a consensus is due to the uncertainty on the progress of the oil market rebalancing as well as Brent oil prices trading at $63 per barrel,” the U.S. bank said in a note.
“The push for a nine-month extension, four months before the cuts end and given an accelerating rebalancing further stands in the face of prior comments that the cuts should remain data-dependent to assess their effectiveness.”
U.S. oil prices fell more than 1 percent on Monday and eased further on Tuesday from a two-year high reached.
Goldman said oil might fall further this week as the market had priced in a nine-month extension.
“We continue to expect a gradual ramp up in OPEC and Russian production from April onward,” Goldman said, adding “as a result, the announcement of an only six-month extension would still initially appear bullish relative to our expectation”.
On Friday, Russia said it was ready to support extending the output-cutting deal but had still to decide on the duration.
It was reported that a major Russian production project led by Exxon Mobil was preparing to ramp up output by a quarter from next year.
The project was not subject to the global output-cutting deal but the development would signal an obstacle to Russia’s efforts on production curtailment.
The Exxon project involves Rosneft, the Kremlin-owned state producer whose boss Igor Sechin, a close ally of President Vladimir Putin, has long been a critic of Moscow’s deal with the 14-country OPEC.
Sources close to talks between OPEC and Russia said tha Moscow wanted to fine-tune the language of the deal to include an option to review the agreement if global stocks fell steeply.
The supply pact was aimed at reducing oil stocks in industrialized countries to their five-year average.
The latest figures suggest OPEC was more than halfway there, with OPEC sources saying the target could be reached after June 2018.