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Monday, 28 November 2016 19:32

SAUDIS TEMPER CALL FOR CUTS AND RUSSIA DIGS IN

Alex Devine, Angelina Rascouet, Bloomberg, 28.11.2016  

 

OPEC surprised the market in September with a preliminary agreement to reduce supply to 32.5 million to 33 million barrels a day, breaking a two-year policy to pump at full throttle. The news pushed prices above $50 a barrel in New York for the first time since June, but optimism faded as subsequent meetings failed to decide cuts for individual members.  

 

Ministers gather in Vienna Wednesday for final talks to hammer out a deal with several obstacles remaining. There’s still no agreed mechanism for Iran and Iraq to participate in a deal, although Baghdad last week appeared to reverse its opposition to making cuts. Libya and Nigeria, both exempt from any supply reductions, are boosting output, increasing the burden on other members. OPEC supply had already swelled to a record 33.6 million barrels a day last month.  

 

OPEC’s own estimates show that the September agreement would barely drain a record oil surplus next year without the cooperation of producers outside the group. Several members are said to be adamant that Russia, the biggest non-OPEC supplier, should shoulder some of the cuts. So far Russia has offered no more than to freeze at current record levels.

 

A meeting between OPEC and non-OPEC nations scheduled for Monday was canceled at the weekend after Saudi Arabia pulled out amid disagreements about allocating cuts. The Saudis suggested for the first time on Sunday that OPEC doesn’t necessarily need to curb output, saying prices would stabilize without an intervention, according to newspaper Asharq al-Awsat.  

 

Following is the latest position of each OPEC country plus Russia. The respective shares of supply are based on October levels. Estimates for the price each member needs to balance its 2016 budget are from the International Monetary Fund unless stated otherwise.  

 

Algeria 

  • Price needed: $90.60
  • Share of OPEC production: 3.3%
  • Energy Minister Noureddine Boutarfa got OPEC members around the table in September to hammer out a tentative agreement. Algeria’s proposal, which includes cuts for individual countries and some exemptions, is still the only plan under discussion, according to an OPEC delegate.

 

Angola

  • Price needed: $66.06 (UBS Group AG)
  • Share of OPEC production: 4.4%
  • Output remains below the level reached in 2014, and a target to raise it to 2 million barrels a day has been deferred to 2017 because persistent low prices have cut investment. Angola wants OPEC to curb supply.

 

Ecuador

  • Price needed: $104.69 (UBS)
  • Share of OPEC production: 1.7%
  • As a relatively high-cost producer, Ecuador is one of the most exposed to low oil prices, and is among members calling for an output cut, Bloomberg Intelligence analyst Will Hares writes. President Rafael Correa has said that failure to reach an agreement could lead to the disintegration of OPEC.

 

Gabon

  • Price needed: n/a
  • Share of OPEC production: 0.6%
  • Gabon reentered OPEC in the middle of the year and has ambitious growth plans -- to more than double current production of 200,000 barrels a day by 2020. The group’s smallest producer, it would benefit from any deal to boost prices, with oil accounting for half state revenue.

 

Iran

  • Price needed: $55.30
  • Share of OPEC production: 11%
  • Iran has added about 880,000 barrels a day since sanctions were loosened earlier this year and is still seeking to regain market share. Those ambitions may be unraveled by U.S. President-Elect Donald Trump, who vowed to overturn the nuclear deal that eased sanctions. Iran refused to join an OPEC-Russia effort to freeze supply in April, prompting Saudi Arabia to scuttle the plan at the last minute. Whether it will participate in cuts this time round is one of the main obstacles to a deal.

 

Iraq 

  • Price needed: $58.30
  • Share of OPEC production: 14%
  • OPEC’s second-biggest producer initially said it should be exempt from cuts because it’s fighting Islamic State militants, but Prime Minister Haider Al-Abadi appeared to reverse that position last week. It’s still unclear how much Iraq is willing to reduce output and the country has been disputing OPEC estimates that would provide a baseline for any agreement.

 

Kuwait

  • Price needed: $47.80
  • Share of OPEC production: 8.7%
  • Ruler Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah has offered to intervene at a political level to help bring about an agreement, and said OPEC should be “insulated from geopolitics.” Along with Saudi Arabia and the U.A.E., Kuwait has traditionally shouldered oil cuts.

 

Libya 

  • Price needed: $216.50
  • Share of OPEC production: 1.5%
  • Libya, exempt from quotas as it recovers from civil war, has the potential to add a significant amount of supply. Output has doubled to almost 600,000 barrels a day since early September, and the country may sustain recent gains, Wood Mackenzie says.

 

Nigeria

  • Price needed: $85.40 (Deutsche Bank)
  • Share of OPEC production: 4.9%
  • Nigeria is also exempt from cuts after militant attacks on oil installations crippled output. It added 170,000 barrels a day last month to reclaim the top spot among African producers, putting OPEC’s target further out of reach.

 

Qatar

  • Price needed: $62.10
  • Share of OPEC production: 1.8%
  • Qatar is less exposed to problems of oversupply because of its low costs and high exports of liquefied natural gas, Will Hares writes. Still, Qatar is expected to swing into a budget deficit this year and would gain from a deal to boost prices.

 

Saudi Arabia

  • Price needed: $79.70
  • Share of OPEC production: 31%
  • Even Saudi Arabia, with its vast reserves, is feeling the pinch from low prices. Energy Minister Khalid Al-Falih said this month he is optimistic OPEC will agree on output ceilings for individual members and a cap of 32.5 million barrels a day would hasten the rebalancing of the market. But on Sunday he appeared to soften his stance, saying prices would stabilize regardless of any OPEC intervention, according to Asharq al-Awsat.

 

United Arab Emirates

  • Price needed: $58.60
  • Share of OPEC production: 9.1%
  • The Gulf state is likely to follow the lead of its ally, Saudi Arabia.

 

Venezuela 

  • Price needed: $117.50 (UBS)
  • Share of OPEC production: 6.4%
  • Venezuela, with the world’s biggest conventional crude reserves, is also one of OPEC’s most desperate members. Low prices have combined with a devalued currency to drive the country to the brink of economic collapse. President Nicolas Maduro has lobbied OPEC to reduce supply.

 

Russia 

  • Price needed: $69 (Natixis SA)
  • Facing pressure to make a meaningful reduction, Russia has argued that its offer to freeze output amounts to a cut compared with next year’s plans. The country pumped 11.2 million barrels a day last month, near a post-Soviet high, and its refusal may put the whole agreement in jeopardy. Yet, Moscow has a powerful incentive to see the deal through -- the price boost resulting from its engagement with OPEC has already yielded $6 billion for the cash-strapped budget.
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