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OPEC+ Sends More Signals It’ll Stick With Current Oil Cuts

Grant Smith, Olga Tanas and Dina Khrennikova

(Bloomberg) -- OPEC and its allies sent more signals that they’ll stick with existing output cuts at their meeting next week.A key advisory committee in Vienna heard that the oil market will be balanced in 2020 if the Organization of Petroleum Exporting Countries maintains current production levels, and it didn’t discuss deeper cuts, according to delegates. In Moscow, industry executives who met with Energy Minister Alexander Novak gave no indication they want to change their supply agreement with the cartel.

That still leaves OPEC and its allies including Russia and Kazakhstan, collectively known as OPEC+, facing some difficult choices when they meet in the Austrian capital on Dec. 5 to 6. Even if the group doesn’t need to go beyond its existing output curbs, supply and demand data suggest it will at least need to prolong the supply agreement past its current end-March expiry.

Oil fell for a second day on Thursday, trading at just below $58 in New York, after U.S. crude supplies rose and U.S. President Donald Trump signed a law supporting Hong Kong protesters that could complicate trade talks with China. The market is being pulled in different directions by powerful forces over which OPEC and its allies have little control, from a predicted slowdown in the American shale boom to conflicting signals about the overall health of the global economy.

In recent weeks, OPEC’s Secretary-General Mohammad Barkindo has taken an optimistic line, talking of “brighter spots for the 2020 outlook” and arguing that any market weakness early in the year will be fleeting. Yet if the gloomiest forecasts for demand growth coincide with a rampant expansion in non-OPEC supplies, banks including Citigroup Inc. and BNP Paribas SA say prices could slump below $50 a barrel next year.

Yet only one out of 35 analysts and traders surveyed by Bloomberg predicted the group will agree deeper production cuts next week.

“We need deeper cuts, I just don’t know how it will be agreed,” Warren Patterson, head of commodities strategy at ING Bank NV, said on Thursday. “The level of additional cuts over the first quarter of 2020 is just too much for members to stomach I think.”

Most of the survey’s respondents predicted the group will decide to prolong their existing supply limits beyond their current expiry at the end of March until at least the middle of 2020.

Different Scenarios

Data presented to OPEC’s Economic Commission Board, which analyzes the oil market in advance of ministerial meetings and sometimes makes policy recommendations, show that an oil-supply surplus in the first half of 2020 will be mostly offset by a deficit in the last six months of the year, the delegates said, asking not to be named because the information isn’t public.

The report, drawn up for the committee by OPEC’s secretariat, included several supply and demand scenarios ranging from bullish to bearish, but didn’t examine the prospect of additional production cuts or consider whether to extend the current curbs beyond their expiry at the end of March, said the delegates.

The ECB’s base case implied a gradual increase in fuel stockpiles in industrialized countries of about 200,000 barrels a day over the course of the year. Stockpiles would remain in line with their five-year average, something the group has long considered to be a sign of a balanced market.

The committee also considered a scenario where oil demand grows more slowly than anticipated and the expansion of rival supplies accelerates, which would result in more significant surplus of 600,000 barrels a day, the delegates said. It also examined circumstances in which the market could be in deficit.

Moscow Talks

A separate meeting on Thursday in Moscow sent similar signals that OPEC+ would maintain its current course. After talks with Novak, executives from oil companies including Lukoil PJSC and Russneft PJSC said they agreed to continue the current deal without changing the terms.

“Everybody proposed we remain in the deal with the same parameters, and meet again in the end of the first quarter for further discussions,” Lukoil First Vice President Ravil Maganov told reporters after the meeting.

It’s too early to say if the accord needs to be extended beyond March, said Sergey Donskoy, a board member from Irkutsk Oil Co. LLC. “Let’s not make sharp moves,” he said.

(Updates with conclusion of meeting in second paragraph)

To contact the reporters on this story: Grant Smith in Vienna at gsmith52@bloomberg.net;Olga Tanas in Moscow at otanas@bloomberg.net;Dina Khrennikova in Moscow at dkhrennikova@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Christopher Sell

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