Officials from the Organization of the Petroleum Exporting Countries, Russia and others, a group known as OPEC+, held an initial round of talks on Sunday before formal discussions began but failed to reach agreement on policy for 2021.
OPEC+ had been due to ease existing production cuts by 2 million barrels per day (bpd) from January 2021, but a second coronavirus wave has reduced demand for fuel around the world, prompting a rethink among members of the group.
OPEC+ is considering extending existing cuts of 7.7 million bpd, about 8% of global demand, into the first months of 2021, a position backed by OPEC’s de-facto leader Saudi Arabia and other major producers, OPEC+ sources told Reuters.
After preliminary consultations on Sunday between Saudi, Russian and other key ministers failed to reach a consensus, sources said talks were focusing on extending cuts by three to four months or increasing output gradually from January.
Russia supports a gradual increase.
OPEC+ has to strike a delicate balance of pushing up prices enough to help their budgets but not so much that rival U.S. output surges. U.S. shale production tends to climb as prices rise above $50 a barrel. Adding to the challenge within OPEC+, Moscow’s finances can tolerate lower oil prices than Riyadh’s.
Oil prices, which were down 1% around $47 by 1325 GMT, could fall as much as 10% if OPEC failed to roll over cuts, Deutsche Bank said in a note. [O/R]
Oil had a bull run last week triggered by hopes for a virus vaccine and expectations of a rollover in OPEC+ cuts.
Kremlin spokesman Dmitry Peskov said differences between Russia and OPEC were not as severe as in early 2020, when disagreements led to a collapse in talks and a surge in output.
But Peskov said President Vladimir Putin had no plans to call Saudi Arabia’s leadership before the OPEC+ meeting, a move that in the past has helped smooth over any dispute.
OPEC+ data shows a three-month extension of existing cuts would still leave oil inventories in the industrial world in 2021 above their five-year average, a key benchmark monitored by OPEC+, although the overhang would be reduced.
“Today’s meeting will be difficult,” the OPEC+ source said.
The meeting of OPEC, which precedes a gathering of the wider OPEC+ alliance, started at 1320 GMT.