OPEC and its Russia-led non-OPEC partners in the production cut deal may roll over in early December the current cuts into June 2020, as Russia will likely support the cartel’s efforts to raise the price of oil, Reuters reported on Thursday, citing OPEC sources and delegates.
Currently, the partners in the deal have two main scenarios to discuss—either roll over the cuts through June next year when they meet early next month, or postpone a decision on the deal for early 2020, before the current cuts expire in March and again, roll over the production restrictions until June, a source at OPEC told Reuters.
“It is more likely that we will extend the agreement in December to send a positive message to the market. The Saudis don’t want oil prices to fall, they want to put a floor under the prices because of the [Aramco] IPO,” the source said.
According to an OPEC delegate who spoke to Reuters, the partners are more likely to extend the cuts in December to avoid meeting again before the current deal expires in March 2020.
Yesterday, Vagit Alekperov, the chief executive of the second-biggest Russian oil producer, Lukoil, said that he expects OPEC and non-OPEC to decide next March whether to roll over the production cuts through the rest of 2020.
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Going into the December meeting, OPEC’s biggest producer and de facto leader, Saudi Arabia, is reportedly pressuring non-compliant cartel members to fall in line with their quotas, instead of pushing aggressively for a deeper overall cut.
OPEC’s key partner in the deal, Russia, is still non-committal, as it has been ahead of all previous such meetings, before agreeing to a rollover of the deal. But Russian President Vladimir Putin said on Wednesday that Russia and OPEC have “a common goal” to keep the oil market balanced, and that Russia would continue to cooperate with the cartel to keep the market stable.
According to analysts, however, simply rolling over the production cuts may not be enough to rebalance the market and push up prices.
The oil market will go into a sell-off mode in case of a mere extension until the middle of next year, Amrita Sen, co-founder of Energy Aspects, told Reuters, noting that the market expects deeper cuts through the rest of 2020.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.