DUBAI/LONDON: Opec and its partners are discussing a proposal to cut oil output by up to 1.4 million barrels per day (bpd) for 2019, three sources familiar with the issue said, a larger reduction than previously thought to avert a price-sapping oversupply.
Worried by a drop in oil prices due to record supply from Saudi Arabia, Russia and the United States, the Organization of the Petroleum Exporting Countries is talking of a U-turn just months after increasing production.
Such a shift could anger US President Donald Trump, who urged Opec on Monday not to cut supply. It also risks handing market share to the United States, while the sources said Russia might need persuading to back such a move.
A steep slide in oil prices has surprised many oil market participants. Brent crude has fallen from a four-year high of $86 a barrel in early October to $66 on Wednesday. Just weeks ago, some trading firms were talking of $100 oil.
The sources, who declined to be identified by name as the talks are confidential, said a cut of up to 1.4 million bpd was one option discussed by energy ministers from Saudi Arabia, non-Opec Russia and other nations in Abu Dhabi on Sunday.
“I believe a cut of 1.4 million bpd is more reasonable than above it or below it,” one of the sources said.
Opec and a group of non-Opec nations, led by Russia, have been cooperating to limit oil supply since the start of 2017.
They partially unwound their reduction in June after pressure from Trump to lower prices.
The Opec-led deal got rid of a supply glut that built up in 2014 as supply from the United States and other countries outside the group soared. The then Saudi Oil Minister Ali Al Naimi blocked an Opec supply cut to preserve market share.
This time, Saudi Energy Minister Khalid Al Falih has publicly spoken of a need to lower supplies, showing price support is trumping market share. Opec meets on December 6 to set policy for 2019.
A new round of Opec-led supply cuts in 2019 would further support US shale oil production, potentially repeating the cycle that played out in 2014.
Oil prices rose on Wednesday, after Tuesday’s 6.6 per cent drop, the largest one-day loss since July.
Figure yet to be agreed
Opec and its partners have not settled on a final figure for a new supply cut, the sources said.
One of the three sources said a minimum cut of 1 million bpd was being considered and it could be larger than 1.4 million bpd. Another source, an Opec delegate, agreed that a larger cut than 1.4 million bpd was possible, depending on the market.
Nigeria and Libya, which are exempt from the current supply limiting accord, could be included in a new agreement, two of the sources familiar with the matter said.
“We are talking about a cut from everyone, including Nigeria and Libya because their production has exceeded the cap in recent months,” one source said.
While Nigeria and Libyan output has risen, another Opec member Iran is facing lower exports due to US sanctions that started this month. Tehran might not deliver a voluntary cut, another of the three sources said.
Opec officials were not sure whether Russia will join another round of supply cuts. Russian Energy Minister Alexander Novak said on Wednesday no emergency action was warranted to stem the decline in prices.
“The market is quite volatile today. We remember that the oil price was sharply rising in the same way, now it is going down. We have to look into long-term development, into how the price will be stabilised,” he said in Singapore.
But Opec officials hope Moscow will come round eventually.
One of the three sources said any cut for Russia could be gradual, citing the example of the 2017 output reduction deal when Moscow delivered its share of the cuts in phases.
“There are a few challenges to the proposal and Russia is one of them,” another source said.