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(This version of the story adds details and quotes from OPEC source.)
- Individual country allocations still undecided
- Iran’s Zanganeh warns of political ‘interference’
- Saudi minister Falih downplays need for OPEC action
- Algeria, Venezuela ministers travel to Moscow
OPEC delegates on Monday sent an output proposal to the producer group’s 14 ministers for approval at Wednesday’s meeting after nearly 11 hours of talks, but still left unsettled one of the thorniest issues preventing a concrete deal: individual country quotas.
«Some concerns» remain about the treatment of Iraq and Iran under the proposal, UAE OPEC governor Ahmed Mohamed Alkaabi told reporters, without elaborating.
«The proposal will be raised to the ministerial conference,» Alkaabi added. «All the things are agreed.»
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An OPEC delegate, who spoke on condition of anonymity, said that ministers would have to resolve the country quota disputes.
«The ministers will determine the figures,» the source said. «They agreed on the same decisions they reached in Algeria with some clarifications. What was proposed in Algeria was discussed here and they reached a general agreement. They will give it to ministers, and they will make a decision.»
Iraq and Iran have requested exemptions from any OPEC output freeze or cut, but Saudi Arabia, OPEC’s largest producer, is not amenable to exempting the two countries, saying that any cut burdens have to be shared equitably and transparently.
With Wednesday’s ministerial meeting fast approaching, OPEC representatives were making a last gasp effort to save the tenuous output freeze first announced in Algiers in September, as the producer group’s divisions appeared to widen over the weekend.
OPEC is trying to clinch what would be its first coordinated cut since 2008 to help accelerate the market’s rebalancing, but positions have hardened over individual country quotas, exemption requests from certain members, and which production figures to use, despite three rounds of technical talks and several minister-to-minister negotiations.
«Key differences that were glossed over in Algiers in September are once again making prospects for a meaningful deal very bleak,» Hedgeye analyst Joe McMonigle said.
The Algiers deal set a ceiling for the group of between 32.5 million and 33 million b/d, which would require a cut of between 640,000 to 1.14 million b/d from its October levels, according to OPEC’s own estimate.
Sources said that delegates were attempting to devise complicated formulae — involving various production and market share levels going back as far as 2005 from which cuts will be allocated — to make the math work.
The technical meeting took the place of a meeting that had been scheduled between OPEC and major non-OPEC producers, including Russia, Azerbaijan and Kazakhstan, that the organization is courting to join its freeze efforts.
But with OPEC having yet to agree among itself on an output deal, despite two previous rounds of technical meetings and several meetings between individual ministers, Saudi Arabia said Friday it would not be attending that meeting, eventually prompting the organization to cancel it entirely.
Analysts with Citi said in a note Friday that the Saudi withdrawal «does underscore how fragile the situation may be.»
EXEMPTIONS IN FOCUS
Given the recent rise in Libyan production, as well as the potential return of Nigerian output, along with record-high Russian production, OPEC likely will have to make a significant cut to have an impact on the market and mop up excess supply.
But Saudi energy minister Khalid al-Falih on Sunday appeared to downplay expectations for OPEC to reach an accord, saying that the market was already rebalancing on its own without any help from OPEC.
«We expect demand to recover in 2017, then prices will stabilize, and this will happen without an intervention from OPEC,» Al-Falih told reporters at Saudi Aramco headquarters, according to multiple reports. «We don’t have a single path … at the OPEC meeting.»
Torbjorn Kjus, an analyst with Norway-based DNB Bank, said that Saudi Arabia would consider meaningless a cut that does not lead to higher oil prices.
«All members have to agree to collective action, pledge to share the burden of cuts, and do so in a way that is transparent and has credibility with the market,» Kjus said. «The last requirement is of course extremely important in order to achieve a price effect from the cuts.»
Libya and Nigeria are reportedly exempt from any deal.
Iran, which told OPEC it produced 3.92 million b/d in October, has been insistent on its right to regain its pre-sanctions market share of some 4 million b/d before agreeing to output restraints, while Iraq, which said it produced 4.78 million b/d in the month, has said it is entitled to an exemption as it fights the Islamic State on behalf of the world.
Both self-provided figures are far higher than independent estimates — another dispute that OPEC will have to resolve in talks this week. Saudi Arabia and other OPEC members have insisted on using the independent estimates, while Iraq, Iran and Venezuela have complained that those estimates undercount their production.
Iranian oil minister Bijan Zanganeh on Monday reiterated his stance that OPEC members which increased their production and took Iran’s market share while it was under western sanctions should bear a greater responsibility for cutting output to rebalance the market.
Many key buyers of Iranian crude before 2012, when the sanctions were imposed, have switched to Saudi Arabia and Iraq for their supplies.
«For management of the market and reduction of output, it’s natural that those countries should take more responsibility and take a bigger share of the production cut,» Zanganeh said, without naming any specific countries.
Zanganeh added that OPEC should be able to reach an accord on a production freeze, if the decision is based solely on economics and sound business principles.
«But if political will interferes in this, making a decision will become difficult,» Zanganeh said in an interview with Iranian state television.
Iraqi oil minister Jabbar al-Luaibi said on arrival in Vienna Monday that he is hopeful that OPEC will come to a collectively agreeable production freeze deal, but did not say what his country was prepared to offer or accept in negotiations.
«We will deal with OPEC, we will cooperate with all OPEC members,» Luaibi said on arrival in Vienna. «Iraq will agree to what is acceptable to all.»
Luaibi echoed comments from Iraqi Prime Minister Haider al-Abadi who also offered some hope for a detente last week, saying Iraq would be willing to partake in an OPEC-wide cut, though he provided no particulars, and no grand bargain has been announced.
MINISTERIAL TALKS
While the technical meeting was going on, Algerian energy minister Noureddine Bouterfa and Venezuelan oil minister Eulogio del Pino flew to Moscow to meet with their Russian counterpart Alexander Novak, according to Algeria’s energy ministry.
Russia, a key producer that OPEC is courting to join in output restraint, has said it would be willing to freeze its production, albeit at record levels of some 11.2 million b/d, only if OPEC can get unanimous agreement on its own output deal.
Bouterfa has been acting as a key go-between in negotiations, according to sources, while Del Pino has been among the most vocal in OPEC in calling for production restraint to prop up prices.
Bouterfa will also hold bilateral meetings with Iraq, Saudi Arabia and Qatar in Vienna before Wednesday’s OPEC ministerial summit, the ministry said.
The head of Libya’s National Oil Corporation, meanwhile, said his country would not be able to participate in any OPEC production cuts «for the foreseeable future.»
The war-torn country, which has seen its production double since the lifting of force majeure at its formerly blockaded ports, needs as much revenue as it can get from its oil, NOC Chairman Mustafa Sanalla said at the Arab-Austrian Economic Forum in Vienna on Friday.
«Libyan oil can be a force for unity if it is allowed to flow freely,» he said.
–Staff reports, newsdesk@platts.com
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