Nigeria is leading a resistance to the demand by Saudi Arabia asking others in the OPEC coalition to reduce their oil production quotas in a bid to shore up global markets.
According to reports monitored by our Correspondent, apart from Nigeria, some members are resisting, delegates said.
The Organisation of Petroleum Exporting Countries (OPEC), is looking at announcing a major output slash to boost oil market.
An OPEC+ source told Reuters on Monday that the expanded cartel is considering bigger oil output cuts during its November 30 meeting, which was originally delayed for four days over a production quota dispute between OPEC leaders and African nations.
OPEC leader has been making a largely unilateral production cutback of 1 million barrels per day, (MMbpd) since July, and is now seeking further support from across OPEC and its partners, said the delegates, asking not to be identified because the information is private.
Brent crude pared earlier losses and was little changed at $80.48 a barrel as of 3:56 p.m. in London.
The Saudi proposal comes amid difficult talks for the producers’ group, which was forced to delay its policy meeting by four days to November 30 Nigeria and Angola resist reductions to their own production quota limits for 2024, which were set out at the group’s last conference in June.
The producers were progressing toward a compromise on this matter before the weekend, but have yet to clinch an agreement, delegates said.
The 23-nation OPEC alliance faces pressure to intervene in crude markets, following a 17 per cent drop in prices over the past two months amid plentiful supplies and a darkening economic backdrop. Markets could weaken further in early 2024, when forecasters including the International Energy Agency anticipate the emergence of a new supply surplus.
Saudi Arabia’s voluntary production cut of 1 MMbpd, implemented in tandem with a 300,000 bpd export reduction from Russia, is currently set to continue until the end of the year.
Most analysts expect Riyadh and Moscow to extend those curbs into 2024.
Market watchers such as JPMorgan Chase & Co. have flagged the possibility that OPEC may cut deeper, and some — such as Commerzbank AG and hedge fund manager Pierre Andurand — have warned that prices may buckle further if they don’t. Brent futures traded near $80 a barrel on Monday.
Supply reductions across the alliance would probably win back oil bulls, but they could be hard to orchestrate. Iraq, Russia and Kazakhstan have recently been pumping over their quotas, while others like the African members have lost so much production capacity, they’re in no position to cut further.
It’s also unclear whether the United Arab Emirates, a key member, will be under pressure not to proceed with a quota increase of 200,000 bpd permitted from January. Abu Dhabi secured the dispensation at the last OPEC gathering in June, in order to finally make use of recent investments in new capacity.
Meanwhile, the unnamed OPEC+ source expected an option for a “collective further reduction” in oil production during the next meeting.
The source’s comments echo similar comments made earlier in November suggesting that additional cuts would be considered.
Last week, analysts increasingly chimed in to predict either an extension of the existing 1 million-barrel-per-day voluntary cuts or additional cuts to support prices which have fallen from highs of close to $100 per barrel in September to barely holding down $80 currently.
Late last week, reports emerged that OPEC+ was making progress in talks with its African producers over their oil output quotas next year after Angola and Nigeria requested a higher production ceiling next year. Both countries took a cut in their quotas at the June 2023 meeting of OPEC+ as they had consistently failed to pump to their quotas.
At the same time, for next year, the UAE is set to increase exports of its flagship Murban crude grade after negotiating a higher production quota in the OPEC+ deal. For years, the UAE, has argued it should be allowed to pump more than its current OPEC+ quota as it is raising its production capacity.
At the June meeting, the UAE won an upward revision of its quota that will take its production up by 200,000 barrels per day (bpd) to 3.219 million bpd for 2024.Earlier on Monday, the OPEC General Secretariat slammed the International Energy Agency (IEA) for its “moment of truth” report on the oil and gas industry released last week.
The IEA suggested that the world now has a stark choice between oil and gas and worsening climate change.
The OPEC criticised the Agency for vilifying the industry and ignoring cost and energy security issues.
Meanwhile , ahead of the delayed OPEC+ meeting on Thursday, there are indications oil supply is running ahead of demand, highlighting the thorny challenge facing the group as it prepares to set production policy for 2024.
With futures well down from September highs, widely watched time spreads for global benchmark Brent and U.S. counterpart West Texas Intermediate have softened, signaling ample supply, while U.S. stockpiles have jumped.
In addition, other more esoteric indications in the physical market, including differentials between specific grades, have been flashing warnings.
The global oil market is fixated upon the meeting of OPEC and its allies, who’ll need to address what analysts see as burgeoning global supply, as well as an internal dispute on quotas. At present, Saudi Arabia and Russia are expected to extend voluntary production cuts, and market watchers say deeper group reductions are also possible. Their decisions will have a profound impact on trading this quarter, as well as next year.
“Sentiment in the oil market remains negative. There is a growing possibility that we see a deeper cut from the broader group. In doing this, the group would provide good support to the market going into 2024,” said head of commodities strategy for ING Groep NV in Singapore, Warren Patterson.
Of primary importance is the structure of the futures curve. The gap between WTI’s two nearest contracts has dipped into a bearish contango, with near-dated prices at a 28-cent-a-barrel discount to later-dated ones. A month ago, the opposite pattern — backwardation — held sway, with a premium above 80 cents.
Brent’s prompt spread, meanwhile, fell into contango earlier this month for the first time since June, although it’s since recovered a little ground.
Longer-term spreads have also come off. Brent’s six-month gap was last at $1.05 a barrel in backwardation compared with nearly $4 a month ago.
In the U.S., stockpiles have been swelling. Inventories have rebounded since hitting the lowest this year in September, rising in five of the past six weeks.
Other indications of ample near-term supply include sour crude grades in the Mediterranean trading at ever-widening discounts. For one, Basrah Medium is now offered at a discount of about $2.50 a barrel to its official selling price, a level many traders deem very low. Prices of other grades including Johan Sverdrup have also sunk.
Asia’s appetite for oil is also softening, with the premium of Oman futures versus Dubai swaps declining this month. Spot differentials of key Middle Eastern grades including Murban have also been falling on weaker demand from buyers in the region, according to traders.