The Organisation of Petroleum Exporting Countries (OPEC) and its allies sent mixed signals about whether they were considering deeper production cuts, fanning oil-market speculation before crucial talks in Vienna this week, reported Bloomberg.
Iraq’s Oil Minister Thamir Ghadhban reiterated his view that the group should deepen its curbs by 400,000 barrel a day beyond the existing 1.2 million supply reduction, adding that he believed Saudi Arabia—OPEC’s defacto leader—also supported the move.
However, an earlier meeting of the group’s Joint Technical Committee, which advises ministers but doesn’t make final decisions, ended without any discussion of steeper cutbacks.
“It has been calculated that the 1.2 million has proved not enough so an additional cut is required, this is not yet final, it’s very much subject to the member countries,” said Ghadhban.
An alliance between the OPEC and several non-members including Russia and Kazakhstan has been restraining output since the start of 2017 in order to eliminate a surplus and bolster crude prices. The agreement expires at the end of March 2019 and ministers must decide what to do next.
One reason for scepticism that deeper cuts are imminent is Iraq’s status as one of the worst laggards in the OPEC+ agreement. For almost three years it has consistently exceeded its quota, actually increasing output since the latest iteration of the accord was agreed in December 2018.
In reality, OPEC+ has already gone deeper than the pledged 1.2 million cut due to a combination of voluntary and involuntary measures. In October 2019, the JTC concluded that group exceeded that target by about 40 per cent.
Saudi Arabia, wishing to lead by example, has pumped well below its quota for the duration of the agreement. Other nations including Angola, Venezuela and Mexico have simply been unable to sustain their production due to industry mismanagement or years of under-investment.
Russian Energy Minister Alexander Novak appeared to pre-empt this debate, saying he would ask to discuss a rule change that would exclude his country’s production of a light oil called condensate from its target. Russia has exceeded its quota in all but three months of 2019, but that accounting change would bring output in line with its target.