Biggest OPEC+ producers aren’t pushing for deeper cuts

Thursday, November 7, 2019 7:16 AM (CST)

According to the Federation delegation, the largest producers of OPEC + are not pushing deeper oil cuts if the group meets next month.

The Organization for Petroleum Exporting Countries and its allies are more likely to adhere to current output targets and encourage member countries to comply more fully, the spokesman said. Producers, which make up half of the world's supply, meet in Vienna on December 5 and 6.

OPEC expects oversupply in the first half of next year and prices are already lower than most members need to balance their budgets. As U.S. shale oil supply surges and global demand slowly rises, additional pressure may be faced in 2020. Morgan Stanley, Commerzbank AG and Rystad Energy AS said OPEC and its allies should deepen their response.

Last month, officials of the group, together with Saudi Energy Minister Abdulaziz bin Salman, the largest and most influential member of OPEC, said it was "job" to stop surplus. But the pain of worrying about sacrificing more sales and sharing the burden can lead to allies waiting and knowing what's going on.

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OPEC + did not begin research on other scenarios to outline the range of deeper cuts that pastors should consider when meeting in early December, representatives said.

Harry Tchilinguirian, director of product market strategy at BNP Paribas SA in London, said, "It will be very difficult to formally agree on new and deeper cuts." "All current-blocking rollovers through 2020 are the least resistance paths with a focus on compliance of all members."

The group has seen less urgent need to take new action this week, said Secretary-General Mohammad Bakindo. The outlook for 2020 has brightened as economic growth continues in 2020 and trade tensions between the US and China have eased.

The main obstacle to the new contract is that some countries that OPEC + has promised to cut supplies by 1.2 million barrels per day have not yet offered the cuts they agreed to earlier this year. Iraq and Nigeria mainly increased production instead of delivering the promised curbs.

Another difficulty paid attention to the less budgetary burden of maintaining oil prices and stronger interventions in securing support from OPEC's main ally, Russia. Energy Minister Alexander Novak said Wednesday that the oil price of $ 60 per barrel shows that the market is stable, and producers will continue to monitor the situation by early 2020.

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Traders, analysts and refiners surveyed in Bloomberg on Wednesday said most expect OPEC and its partners to extend their existing output limits (expiring in March) by mid- or late-end next year. 24 of the 38 predicted rollovers, and the other 9 predicted that rollovers would fall even worse.

Case for action

The case is more active. According to the organization's data show, with the continued surge in US shale oil, supplemented by new supplies in Brazil and the North Sea, the production of OPEC rivals will expand twice as fast as global consumption in 2020.

Bob McNally, president of Rapidan Energy Group and former oil official under President George W. Bush of the White House, said, “Tsunami supply is expected next year. “If OPC does nothing, global inventory will increase by more than 1.2 million barrels a day. We assume they will announce the cuts in December. ”

But new consensus can be too difficult to achieve.

Saudi Arabia, the largest and most influential member of the cartel, has already more than doubled its production than has been agreed in the current contract. According to the delegates, the kingdom was disappointed that it had not yet fully implemented the reductions made by others earlier this year.

“The issue of announcing deeper cuts is that some members are still not compliant and others are over-compliant,” said Giovanni Staunovo, an analyst with ZBS UBS AG.

In addition, by raising prices and encouraging investment in OPEC rivals, there is a risk that the current strategy will be counterproductive. According to the long-term outlook released on Tuesday, as US shale oil continues to grow, predictions about the amount of oil to pump in the next few years have drastically decreased.

-Support of Sharon Cho, Ann Koh, Serene Cheong, Saket Sundria, Jessica Summers and Dina Khrennikova.

© 2019 Bloomberg L.P.


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