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Opec tries to salvage deal as Saudis say cut isn’t essential

Without an Opec cut, the International Energy Agency predicts that the oil market will remain in surplus for a fourth year in 2017

Gulf News

Moscow: Opec ministers flew to Moscow and officials in Vienna started another round of talks in an effort to salvage an agreement on production cuts, just as Saudi Arabia said a deal might not be necessary.

With only two days to go before ministers from the Organisation of Petroleum Exporting Countries try to finalise the first production decrease in eight years, the foundations for a deal are looking shaky. A final round of diplomacy focused on internal divisions over how to share the cuts and Russian resistance to reducing supply, which already forced the cancellation of crucial talks with non-Opec suppliers. Khalid Al Falih, the Saudi oil minister, for the first time on Sunday floated the possibility of leaving Vienna without an agreement.

Al Falih’s comments came two days after Saudi Arabia pulled out of a meeting with non-members including Russia, arguing that Opec needs to sort out its internal divisions before engaging with other producers. It’s unclear whether the minister has experienced a sincere change of heart about the merits of an agreement, or is attempting to boost his negotiating position with Iran and Iraq, which have resisted production cuts.

“Saudi Arabia and Iran are all playing very strong negotiation tactics,” said Abhishek Deshpande, chief energy analyst at Natixis SA in London. “The problem for Saudi Arabia is that this isn’t the 1980s and 1990s, when it could use its clout and expect others to follow. Today members like Iran and Iraq are equally strong and their agenda is to ensure they get a large market share.”

Without an Opec cut, the International Energy Agency predicts that the oil market will remain in surplus for a fourth year in 2017, which could cause prices to fall. Brent crude fell as much as 2 per cent to $46.28 a barrel as of 11.50am in London, the lowest in 10 days.

“We expect demand to recover in 2017, then prices will stabilise, and this will happen without an intervention from Opec,” Al Falih said in Dhahran, eastern Saudi Arabia, on Sunday, according to the Saudi newspaper Asharq Al Awsat. “We don’t have a single path which is to cut production at the Opec meeting, we can also depend on recovery in consumption, especially from the US.”

Russia help

As Opec tries to resolve its own differences, the group is also asking other big producers including Russia to reduce output by as much as 600,000 barrels a day. The Kremlin so far resisted Opec’s request that it joins the cut, offering instead to freeze production at its current level.

Talks in Vienna with non-members scheduled for Monday were cancelled last week after the Saudis pulled out. A breakfast meeting with other nations that was tentatively scheduled for the morning of November 30 has also been cancelled, said an Opec delegate.

“It’s not beneficial to attend the meeting with producers from outside Opec before holding meetings within Opec and deciding whether to cut or continue with current levels of production,” Al Falih said, according to Asharq Al Awsat.

In an unexpected move, Algerian Energy Minister Noureddine Boutarfa, one of the architects of Opec’s September accord to reduce output, and Venezuela’s Eulogio Del Pino, a regular intermediary in the group’s discussions, will meet in Algiers and then travel to Moscow on Monday, according to two delegates familiar with the matter, who asked not to be identified as the talks are private.

Internal differences

Instead of meeting with non-Opec producers in Vienna Monday, officials from the group’s high-level committee will instead have another go at agreeing among themselves how much each member should cut. A similar effort last week proposed the group reduce output by 4 per cent to 5 per cent, but failed to resolve the question of Iran and Iraq’s participation.

Algeria’s Boutarfa presented Iranian Oil Minister Bijan Namdar Zanganeh with a proposal for a collective cut of 1.1 million barrels a day in Tehran on Saturday. Iran had previously said it should be allowed to continue increasing production as its exports recovered from nuclear-related sanctions that were eased in January.