LDN - Business

OPEC oil cuts at risk as Russia yet to commit

[December 06, 2018] By Rania El Gamal and Ahmad Ghaddar

VIENNA (Reuters) - OPEC and its allies are working towards cutting oil output by up to 1.5 million barrels per day but could fail to reach a deal if no compromise is found with non-OPEC Russia, the Saudi energy minister said on Thursday.

As the Organization of the Petroleum Exporting Countries gathered in Vienna, it awaited news from Russian Energy Minister Alexander Novak, who flew home from the Austrian capital earlier for possible talks with President Vladimir Putin.

Novak returns to Vienna on Friday for discussions among Saudi-led OPEC and the group's allies.

OPEC hopes to prop up the price of crude, which has fallen by almost a third since October, but U.S. President Donald Trump has demanded it make oil cheaper by refraining from output cuts.

"We hope to conclude something by the end of the day tomorrow ... We have to get the non-OPEC countries on board," the Saudi minister, Khalid al-Falih, told reporters.

"If everybody is not willing to join and contribute equally, we will wait until they are."

Asked whether OPEC could fail to reach a deal, Falih said all options were on the table. Possible output cuts by OPEC and its allies ranged from 0.5-1.5 million bpd, and 1 million bpd was acceptable, he said.

OPEC began its closed-door meeting around 1100 GMT.

Brent oil futures <LCOc1> fell as much as 5 percent to below $59 per barrel on fears that there could be no deal but later recovered somewhat, trading down 2 percent by 1230 GMT.

"One million bpd may disappoint many. But should the cut be from a September or October baseline, rather than November, the net impact would be sufficient to limit storage builds," Greg Sharenow, executive vice-president for Pimco, said on the sidelines of the OPEC meeting.

"It is unlikely to spark a meaningful price rally, but also will not be so dire either. In many respects it is the middle road, which may be the optimal solution," said Sharenow, who helps manage a $15 billion commodities fund at the $1.77 trillion U.S. investment management firm.

OPEC delegates have said the group and its allies could cut by 1 million bpd if Russia contributed 150,000 bpd of that reduction. If Russia contributed around 250,000 bpd, the overall cut could exceed 1.3 million bpd.

Novak said on Thursday that Russia would find it harder to cut oil output in winter than other producers because of the cold weather.

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Iraq's Oil Minister Thamir Abbas Al Ghadhban talks to journalists at the beginning of an OPEC meeting in Vienna, Austria December 6, 2018. REUTERS/Leonhard Foeger

Oil prices have crashed as Saudi Arabia, Russia and the United Arab Emirates raised output since June after Trump called for higher production to offset lower exports from Iran, OPEC's third-largest producer.

Graphic: Who might agree to an OPEC crude supply deal? https://tmsnrt.rs/2Ru61od

Graphic: OPEC's battle to coax Russia to cut oil output as the US ramps up - https://tmsnrt.rs/2RzCE3J

Graphic: Difference in OPEC oil output between Nov 2018 and Oct 2016 - https://tmsnrt.rs/2RqgBMS

Russia, Saudi Arabia and the United States have been vying for the position of top crude producer in recent years. The United States is not part of any output-limiting initiative due to its anti-trust legislation and fragmented oil industry.

Graphic: OPEC* crude production in November - Reuters Survey - https://tmsnrt.rs/2RqgctQ

TRUMP RAISES PRESSURE

Iranian exports have plummeted after the United States imposed fresh sanctions on Tehran in November. But Washington gave sanctions waivers to some buyers of Iranian crude, further raising fears of an oil glut next year.

"Hopefully OPEC will be keeping oil flows as is, not restricted. The world does not want to see, or need, higher oil prices!" Trump wrote in a tweet on Wednesday.

Iranian Oil Minister Bijan Zanganeh said on Thursday he would support a cut as long as Iran did not need to reduce its own output. Iraqi Oil Minister Thamer Ghadhban said Iraq as OPEC's second-largest producer would support and join a cut.

Possibly complicating any OPEC decision is the crisis around the killing of journalist Jamal Khashoggi at the Saudi consulate in Istanbul in October. Trump has backed Saudi Crown Prince Mohammed bin Salman despite calls from many U.S. politicians to impose stiff sanctions on Riyadh.

(Additional reporting by Shadia Nasralla, Olesya Astakhova and Alex Lawler; Writing by Dmitry Zhdannikov; Editing by Dale Hudson; Graphics by Amanda Cooper)

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