Oil future decided in Vienna
The OPEC/non-OPEC Joint Ministerial Monitoring Committee is expected to outline the guidelines for the overall oil output level in 2019 at the meeting in Vienna on December 5-7.
Russian Energy Minister Alexander Novak and his Saudi Arabian counterpart Khalid Al-Falih will hold bilateral talks this morning before taking part in the OPEC/non-OPEC Joint Ministerial Monitoring Committee’s meeting in Vienna, TASS reported with reference to sources in the delegations.
According to experts, the negotiations will be challenging, since Russia and Saudi Arabia have been discussing cutting the oil output since November. The two key oil producing countries have different stances on the volume to be curtailed. Saudi Arabia suggested rolling back the oil output by at least 1 mln barrels per day, while Russia is only ready for a symbolic cut.
The OPEC plus is unlikely to reach a consensus until Russia supports the oil output cut, participants say on the sidelines of the meeting. Some of them believe that no deal on curtailing oil output will be achieved.
The meeting of the Monitoring Committee, which consists of six out of 25 participating states, is scheduled for 15:00 Moscow Time (12:00 GMT).
First Vice-Rector for International Cooperation and External Communications of Financial University under the Government of the Russian Federation, the founder and CEO of the national energy security Fund of Russia, Konstantin Simonov, speaking to Vestnik Kavkaza, noted that the OPEC+ situation has become quite confusing. "On the one hand, we have Vladimir Putin's statement that Moscow has agreed with the Saudis on reviving the OPEC+ agreement, which makes us expect new agreements between Russia and Saudi Arabia to reduce oil production. On the other hand, the main issue with the cut amount and dates is not clarified," he said.
"As far as I know, the difference in our positions is about 300 thousand barrels per day: the Saudis believe that it is necessary to reduce oil output by 1.3 million barrels per day, and for us 1 million would be enough. The reason for the disagreement is understandable. our national quota depends on the common output, the range is from 150 to 300 thousand barrels per day, which is a fundamental difference. I think that the negotiations will continue until the last moment, and a reduction will still take place. The market's reaction will depend on the outcome of the meeting: the biggest expected cut will cause an increase in oil prices, but we can expect a drop in prices after the minimum cut. If there is no deal at all, then prices may drop below $50 a barrel," Konstantin Simonov expects.
A senior analyst of 'Uralsib', Alexei Kokin, noted that Russia has rather optimistic expectations from the three-day meeting in Vienna. "One way or another, output cuts withing OPEC+ will be approved. We think it will be less than 1.5 million barrels per day. The updated deal will be issued, most likely, in the form of certain obligations to fulfill the quotas which were set earlier, with subsequent corrective meetings," he said.
"The market situation is unpredictable due to the fact that the volume of oil that will go away in the coming months due to the sanctions against Iran is not yet fully known. Russia will favor a smaller option to cut oil output. Any additional change in output creates much more problems for Russian companies than for Arabian ones - even if they belong to the government, they operate as private companies. Any adjustments during the year are difficult for them," Alexey Kokin noted.
"Even those 300 thousand barrels per day of cuts were a very big step for Russian companies. Cutting output by the same amount for the second time would be extremely problematic after output growth has started this year and some projects were launched, especially by Rosneft," the senior analyst of 'Uralsib' concluded.