While the oil market speculates on whether or not OPEC+ will ease its production cuts in January amid sluggish demand, rumors emerged on Thursday that the three biggest OPEC producers behind Saudi Arabia may not be on board with extending the current cuts into next year.
Iraq, the United Arab Emirates (UAE), and Kuwait - the biggest OPEC producers behind Saudi Arabia – are reportedly not particularly inclined to support a rollover of the cuts of 7.7 million barrels per day (bpd), because such cuts are too deep for their economies and budget incomes to sustain. This news came from Reuters on Thursday, quoting sources in OPEC and the industry.
Sources in OPEC told Reuters that the two leaders of the OPEC+ pact, Saudi Arabia and Russia, would be inclined to favor rolling over the cuts of 7.7 million bpd in 2021, instead of easing them by 2 million bpd as set in the current OPEC+ production agreement.
OPEC and its Russia-led partners will likely consider “a lot of demand issues” before tapering their cuts, a senior executive at Saudi Aramco said this week, while Russian President Vladimir Putin said last week that he is not ruling out OPEC+ delaying the easing of the cuts, or even making further reductions.
However, the UAE and Kuwait – which have typically followed Saudi Arabia’s lead when it comes to agreements and compliance with the cuts - as well as Iraq, are reportedly unwilling to back a rollover of the deep cuts.
“The countries are being suffocated with those cuts, it is very tough to continue with them next year too,” an OPEC source told Reuters.
The reported unwillingness of OPEC’s three largest producers behind Saudi Arabia to agree to keep the deep cuts could become a source of renewed tension in the cartel and the larger OPEC+ group, and create new drama when the alliance meets later this year to set the course for 2021.
By Tsvetana Paraskova for Oilprice.com
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Can't speak to the lockdowns from Covid-19 as the cause but certainly that is the claim. I would argue so many Wars are suddenly exploding over the need to get oil to a refinery to make the money needed to finance all these Wars is the major problem going on many years now. Oddly enough US Refineries are not running at full capacity in the least at the moment but are still producing more than enough product to provide for domestic and even many international needs.
Therefore, an extension of the current OPEC+ cuts of 7.77 million barrels a day (mbd) beyond January 2021 and for as long as needed is very essential to prevent another steep slide in oil prices. A bit of extra pain now is certainly preferable to another tragedy later.
OPEC+ members particularly the laggards among them shouldn’t rock the boat at this critical time and should also refrain from giving conflicting signals to the global oil market.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London