OPEC seeks to support oil prices with more supply cuts

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Oil exporters’ club OPEC is expected to announce deeper cuts in supply at a meeting in Vienna this week to support prices over the first half of next year, analysts said.

OPEC and allied nations have been restraining output for almost three years to keep global energy markets in balance, but the current deal removing 1.2 million barrels per day (bpd) expires in March next year and output from producers outside OPEC’s orbit, including the US, Canada, Brazil and Norway, is expected to grow.

Many industry analysts expect ministers simply to extend the current agreement to the end of 2020. But Iraq’s Oil Minister Thamir Ghadhban has suggested that OPEC and friends agree to remove another 400,000 barrels a day from the market, taking the total cut to 1.6 million. Gary Ross, CEO of Black Gold Investors and a veteran market analyst, said he expected the group to go even further.

“OPEC is likely to announce additional cuts beyond the 1.2 million,” said Ross, a veteran market analyst and OPEC watcher. “The Iraqis have already let the cat out of the bag by floating an additional cut of 400,000. Perhaps the Saudis want something more dramatic to have a market impact. It is absolutely required that additional cuts are made to support the price,” he added.

Saudi Arabia is holding the current oil deal together with a high level of discipline, while others including Iraq, Russia and Nigeria have allowed their compliance to slip. The Kingdom’s energy minister, Prince Abdulaziz bin Salman, hosted a meeting of five key OPEC ministers and OPEC’s Secretary General, Mohammed Barkindo, on Wednesday night.

The Wall Street Journal reported on Wednesday night that Saudi Arabia had threatened to boost oil production unilaterally if other members of the club continued to defy the curbs.

Bhushan Bahree, executive director of global oil at IHS Markit, told the Associated Press: “I think the Saudi position is they’re willing to cut more if needed, but they want better compliance.”

North Sea Brent crude oil prices stood at $61-$62 per barrel on Wednesday, having spent the past year in a range of $50 to $75. Saudi delegates have the additional consideration of the impending flotation of the state oil company on the stock market, in what is expected to be the largest initial public offering ever. The company’s new stock is due to start trading on the Riyadh exchange on December 11.

Market analysts expect to see a significant increase in oil production by producers outside of OPEC’s orbit in 2020, but how this affects prices will depend heavily on world economic growth.

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