Just when a potential OPEC deal was looking more like wishful thinking than a reality, sources told Reuters on Thursday that Saudi Arabia and its Gulf OPEC producer allies had signaled that they would be ready to cut their near record crude oil production by 4 percent.
According to the Reuters sources, the energy ministers from the Gulf countries told Russian Energy Minister Alexander Novak last Sunday in Riyadh that they would be willing to cut. Novak, on the other hand, told the Gulf ministers that Russia would not cut, but rather freeze its crude oil output at its current level.
The Saudis and their Gulf OPEC allies are expected to table the offer to cut 4 percent of output until a meeting on October 28 and 29, when OPEC and non-OPEC producers, including Russia, will discuss details of the deal-to-make-a-deal they had reached in Algiers last month.
Right after his trip to Riyadh, Russia's Novak sent vague messages to the market, as did his Saudi counterpart, Khalid al-Falih.
Then Iraq went rogue and said it wanted to be exempted from production cuts due to the war it is fighting against ISIS, thus threatening to derail outright what looks like a nearly impossible deal to reach anyway.
However, according to OPEC sources, Saudi Arabia and its Gulf Arab allies would likely oppose Iraq's 'demand' for exemption.
"If there is a cut, then everyone must cut. No exemptions," one OPEC source said, as quoted by Reuters.
Although it has not been officially communicated, there has been a basic general understanding that only conflict-torn Libya and Nigeria, as well as post-sanctions Iran, would be given leeway while others are left to cut production.
A possible deal is further undermined by that very same Iraq, which questioned OPEC's output estimates the day after the cartel agreed to work toward a production limit range of 32.5 million bpd and 33 million bpd. Since then, Iran and Venezuela have also joined the group of those discontented with how OPEC uses secondary sources to report production data for each member state.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More
Comments
The rest of the world next year is estimated at 63Mbpd. Add 33, and you get 96 Mbpd supply next year when estimate demand is about 95.
Given that Russia and Saudi are running flat out with little spare capacity, this gap could close suddenly if a deal is struck where the Saudis sweaten the deal to get the Russians to curtail investment and allow natural depletion to take hold.
If production continues to tail off in the Americas and China, you could see a situation in which the surplus is gone in a year. But of course neither the Saudis or Russians want to see a return to 90 dollar oil before 2019.