The OPEC+ JMMC has recommended a 500k b/d cut to the group’s output quota, delegates said Thursday, following the customary deluge of conflicting headlines out of Vienna.
Prince Abdulaziz bin Salman – who replaced Khalid al-Falih as Saudi energy minister in September – reportedly told his counterparts that Riyadh has run out of patience with cheaters and habitual under-compliance. (Back-stabbing is part of cartel life.)
The kingdom, Prince Abdulaziz communicated, will cut production, but only if everyone else makes good on their commitment to implement the output curbs. If not, the Saudis may just lift their own production.
The current deal – under which the cartel and its allies agreed to take 1.2 million b/d off the market to bolster prices – is set to expire in March, a delicate juncture when demand is seen abating and alternative supply comes online. That could create another glut, driving prices lower, something nobody really wants, especially the Saudis who just priced the Aramco IPO at the top end of the range. (Although, as detailed here, there’s actually a math-based argument for the kingdom to pump more oil now that Aramco is public, even if that means prices fall a bit.)
The chatter this week generally revolved around a proposal by Iraq to deepen the cuts by 400k b/d. As Bloomberg’s Javier Blas wrote on Wednesday, “OPEC+ has already gone deeper than the agreed 1.2 million reduction due to a combination of voluntary and involuntary measures… meaning the additional curbs Iraq is proposing are actually in place, albeit unofficially”.
“Given it is not an OPEC member and only a reluctant participant in this year’s supply cuts, Russia will likely pay lip-service to a continuation of production restraint while not really holding back”, Eurasia Group analysts including Ayham Kamel and Henning Gloystein said this week.
On Thursday, a pair of sources “confirmed” (if that’s what you want to call it) to Reuters that the group intends to deepen the curbs to 1.7 million b/d, amounting to 1.7% of global supply.