OPEC Edges Closer to Production Cut as Saudis Signal Intent
Saudi Arabia’s oil minister said the Kingdom was ready to cut production by 500,000 barrels a day in December
ABU DHABI—OPEC is likely to agree to an oil production cut when it meets next month in Vienna, the oil minister of Oman said Sunday, after Saudi Arabia confirmed that it would cut its own oil supplies next month and Russia signaled that it could follow suit.
“There is consensus that there will be oversupply in 2019,” Oman Oil Minister Mohammed bin Hamad al-Rumhy told The Wall Street Journal after the Joint-Ministerial Monitoring Committee meeting in Abu Dhabi. While Oman isn’t a member of OPEC, it’s part of its production decisions.
The news comes after Khalid al-Falih, Saudi Arabia’s oil minister said the Kingdom was ready to cut production, while Russia left the door open to the possibility.
Saudi Arabia, Russia—which are the world’s largest oil exporters—and a few other producers were meeting in Abu Dhabi to examine whether reductions of 1 million barrels a day would be needed next year.
Speaking before the meeting, Mr. al-Falih said the Saudi production cut was imminent.
“December nominations are 500,000 barrels a day less than they were in November. You will see a tapering off,” he said.
Russia, the biggest external ally of OPEC, had been expected to oppose any new reduction because its state-run oil companies have heavily invested in a production ramp up.
But the country’s oil minister Alexander Novak didn’t rule out a cut next month. Speaking ahead of the gathering, Mr. Novak said he was “in theory” open to crude production cuts, if the coalition reaches a consensus and would adhere to any decision it takes.
The coalition of 25 producers in the Organization of the Petroleum Exporting Countries and outside the group is set to make a decision next month in Vienna.
But Mr. Falih said it was too early to say what would decided at the meeting. “We will not be shying from doing a cut but only if it’s necessary,” he said, adding the group needed to be sure “oversupply will continue into 2019.”
He added that such collective decision remained highly uncertain. “Quite frankly, we are seeing some signs of [a persistent glut] coming out of the U.S. [but] we have not seen the signs globally,” he said.
Any cuts to production comes as oil entered a bear market on Thursday. Friday’s close marked the 10 consecutive sessions of losses, the longest since July 1984.
Complicating OPEC’s decision-making is the return of U.S. sanctions on Iran and Washington’s decision to grant temporary waivers to eight countries that would allow them to buy oil from the Islamic Republic.
In addition, Venezuela’s oil minister Manuel Quevedo said earlier Sunday his country is planning to boost production by half-a-million barrels a day as part of a capacity ramp-up fueled by Chinese funding.
But Helima Croft, the chief commodities strategist at Canada’s RBC, said Venezuela would be unlikely to boost output even with an emergency cash injection. Many oil staff are leaving their position or “going hungry. The infrastructure is in complete disrepair,” she said.
The Wall Street Journal reported last week that a Saudi-funded think tank, the King Abdullah Petroleum Studies and Research Center, has been studying a scenario under which OPEC would disband. “Think-tanks like to think. We won’t discourage them of thinking,” Saudi Arabia’s Mr. Falih said. “We are asking them to consider all scenarios.”
But the minister, who said he was speaking on behalf of the Saudi leadership, said “we believe that any professional study by [KAPSARC] will show that the combination of cooperation and mitigating extreme volatility will be the best for the market.