Cracking towers stand at the Ruwais refinery and petrochemical complex, operated by Abu Dhabi National Oil Co. (ADNOC), in Al Ruwais, United Arab Emirates, on Monday, May 14, 2018. Adnoc is seeking to create world’s largest integrated refinery and petrochemical complex at Ruwais. Image Credit: Bloomberg

Abu Dhabi: Oil ministers from Opec as well as Russia will gather in Abu Dhabi on Sunday amid drop in oil prices due to record production from the US as well as waivers granted to eight countries that import oil from Iran.

The US administration allowed eight countries including India, China, Japan, Taiwan and Turkey, among others to continue buying oil from Iran despite renewal of sanctions on the third biggest oil producer within the Organisation of the Petroleum Exporting Countries group over its controversial nuclear enrichment programme. US sanctions on Iran came into effect from November 5.

“Given the genuine concerns surrounding oversupply owing to record US oil production, expanding inventories and US waivers granted to some countries for Iranian crude imports, we view that the potential of an additional round of Opec production cuts as highly likely to be on the table during discussions in Abu Dhabi this weekend,” said Ehsan Khoman, Director, Head of Mena Research and Strategy MUFG Bank in Dubai. “The question now turns to the speed and magnitude of the expected next iteration of production cuts, as well as the quota allocations for each Opec member state when producers meet in Vienna on December 6.”

However, he said there is one sticking point between Saudi Arabia and Russia on the oil price range that is comfortable for both the countries. “While the two may overall be content to coordinate active oil market management within the $65-75 per barrel range, their interests may be deviating, with Russia more inclined towards the lower end of the range against Saudi Arabia preferring the higher end of the spectrum, given the latter’s higher fiscal break even oil price.”

Brent, the global benchmark, was trading at $70.18 per barrel, down by 0.67 per cent when markets closed on Friday. US crude West Texas Intermediate was down by 0.79 per cent at $60.19 per barrel.

In a report on Wednesday, the Institute of International Finance (IIF) said that Brent oil prices could decline below $70 per barrel due to oversupply in the market. “Global markets are now well-supplied with crude oil as the United States, Russia, Saudi Arabia and Canada are each producing near-record volumes,” said Garbis Iradian, chief economist for Mena at IIF.

Oil supplies from the neutral zone, which is shared by Kuwait and Saudi Arabia, is also expected to resume sometime next year, along with the export of crude oil in the Kurdistan region, which is about 300,000 barrels per day. The production at the neutral zone was about 0.5 million barrels per day in 2015. “These developments will further put downward pressure on oil prices,” Iradian said.

On the Opec meeting in Abu Dhabi, Iradian said production cuts are likely to be discussed but no decision will be taken early next year.

Oil ministers as well as the Opec governors of the six member countries including Saudi Arabia, Russia, Kuwait, Oman, Venezuela, Algeria and the UAE will take part in the Joint Monitoring Ministerial Committee meeting on Sunday, according to a statement from the UAE’s Ministry of Energy.