OPEC + is likely to expand oil supply reductions until June: sources

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DUBAI / MOSCOW (Reuters) – OPEC and its allies are likely to expand the current oil output reductions when they meet next month until mid-2020, and non-OPEC oil producer, Russia, is supporting the pressure of Saudi Arabia on stable oil prices among the state giants Saudi Aramco oil.

PHOTO FILE: The Organization of Petroleum Exporting Countries (OPEC) logo appears at OPEC headquarters in Vienna, Austria 1 July, 2019. REUTERS / Leonhard Foeger

The Organization of Petroleum Export Countries meets on 5 December at its headquarters in Vienna, followed by talks with a Russian-led group of other oil producers, called OPEC +. The current oil supply cuts continue until March 2020.

On 5 December, Saudi Arabia will be able to announce the final price for Aramco's first public announcement, expecting it to be the world's largest IPO. The oil price at the time is likely to be crucial to the Aramco list, which is expected around mid-December.

“To date we have two main cases: we meet in December and the current cuts are extended until June; or postpone the decision early next year, come together before March to find out how the market looks and spreads the cuts until mid-year, ”said OPEC source.

“We are more likely to extend the agreement in December to send a positive message to the market. The Saudis do not want to fall oil prices, they want to floor under the prices due to the IPO (Aramco). ”

OPEC sources pointed out that market conditions in the first quarter of 2020 are not clear among concerns about a slowdown in oil demand and poor production compliance by some producers such as Iraq and Nigeria, which is contributing to the outlook.

A delegate from the OPEC said: “My view is that the extension to the end of June is avoiding a meeting again in early March, with the possibility of requesting a meeting (earlier) if market conditions demand. it … today. "

According to the two sources that formally announced deeper cuts it was not possible now that a better compliance message with current cuts could be sent to the market.

Saudi Arabia, de facto leader of OPEC, wants to focus initially on adhering to the group's reduced production agreement before they commit any further reductions, they said.

“The Saudis wants to see how the rest of those who are not (with the cuts) do the first time. No numbers have been distributed so far for deeper cuts or output quotas to change, ”said the first source of OPEC.

Amrita Sen, co-founder of Energy Aspects think tank, said that closely looks at OPEC and Saudi oil policies, that an extension to OPEC + of the current output cuts to June might not be enough to support oil prices.

“The market expects further cuts and extensions to the end of 2020. In any other case, the market will sell,” she said.

Russian President Vladimir Putin arranged the tone for the meeting in December last week, stating Saudi Arabia's position ahead of the “tough” talks.

Moscow argues that it will be difficult to voluntarily cut oil production during the cold winter months, particularly in western Siberia, where Russia produces two-thirds of its oil and where its good rigs are located.

Freezing temperatures make it difficult for Russia to stop and restart wells in the winter months.

“There is no doubt that Russia did not allow Saudis to fall in the event of falling prices, due to the upcoming IPO,” said one source that was familiar with Russian thinking.

He also said that Putin developed close links with the Arabian Crown Prince Mohammed bin Salman and the Russian government was aware that the three-year partnership could fall apart if Russia did not support Riyadh.

Since then, an alliance has been put in place by the OPEC + alliance to reduce output 1.2 million barrels a day, to help oil prices now traded at $ 62 per barrel.

“Not only does it support Saudi Arabia. This discussion is undoubtedly beneficial to Russia. The Russian budget received more than $ 100 billion from the market. And the economy has stabilized the Russian economy, ”said Kirill Dmitriev, head of the Russian Direct Investment Fund, with Reuters.

Dmitriev and Minister for Energy Alexander Novak were the chief architects in dealing with Saudi Arabia, which began in 2017.

Saudi Arabia and other Gulf producers in the OPEC are delivering more than their share of the promised reductions to stabilize the market and to prevent falling prices.

In October, the kingdom increased its oil output to its OPEC target, depositing 10.3 million bpd to restore inventories after attacks on its facilities last month, but retained the crude oil supplies supplied to the market at 9.9. million bpd.

Last week, OPEC Secretary-General Mohammad Barkindo said that a boom in shale oil supply could be late next year while the demand could be upside down, and it seems that any need to reduce the need for cut output deeper.

Additional reporting by Vladimir Soldatkin in Moscow; Ahmad Ghaddar, Alex Lawler and Dmitry Zhdannikov in London; editing by David Evans

Our Standards:The principles of Thomson Reuters Trust.

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