Saudi Arabia wants OPEC+ to deepen oil cuts due to Aramco IPO

Marco Green
December 3, 2019

But it remains unclear whether there is consensus in the group to achieve deeper cuts.

Vagit Alekperov, CEO of 2 Russian oil producer Lukoil (LKOH.MM) said it would not be wise to deepen production cuts in the winter, especially for Russia.

Empirical evidence has demonstrated that a 1 million bpd surplus of oil can be expected to cause an oil price decline of around 5% per month, implying a potential drop of 30% over six months.

Nonetheless, latest comment from Iraqi oil minister, Thamir Ghadhban, followed a shocking response from OPEC's one of the closest allies, Russia, energy minister of which was quoted saying earlier on Friday (November 29th) that the OPEC+ nation was seeking to prevent an extension of output curb amid growing grudges from its state-backed oil agencies.

Based on what I've read, the cuts may be deeper, but over a shorter time period.

The partners will look at the outlook for the upcoming year, review reports and research related to the most important challenges faced in terms of oil surplus and increased USA shale production, the minister said.

Iraq, the second-largest oil producer within Opec, said it supports any goals to rebalance the oil market and lead to its stability. While this should in theory be massively bullish, the reality is that crude oil is in a range. Global oil market will be oversupplied to the tune of 1.2 million bpd in 2020.

The combination of prospects of low oil prices and Canadian infrastructure bottlenecks means oilsands companies have pulled back on capital spending next year. "There is a big stock build in the first half of the year - we need to keep an eye on that".

The OPEC minsters believe relentless US oil production growth will slow rapidly next year.

"Barring any dramatic market developments, the emphasis will likely be on further tightening the market through better compliance enforcement", Helima Croft, Head of Global Commodity Strategy at RBC said in a report.

Ghadhban added that Iraq, as of Sunday, has exceeded 100 percent commitment with the supply deal and that an agreement capping production from the semi-autonomous Kurdistan region will also aid compliance. Their current deal to cut supply by 1.2 million bpd started in January and expires at the end of March 2020.

Other reports by Click Lancashire

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