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OPEC’s Number Two Suggests Deeper Oil Output Cuts

Irina Slav

OPEC and its partners will discuss the possibility of adding another 400,000 bpd to its oil production cut during this week’s meeting, Iraq’s Oil Minister Thamer al-Ghadban told a local media outlet.

"OPEC and its allies will look at increasing the current production cuts by approximately 400,000 barrels a day, to 1.6 million barrels a day," al-Ghadban said, essentially confirming rumors that OPEC, Russia and their smaller partners may heed calls for deeper cuts to prop up prices.

However, discussing the topic does not necessarily mean it will be agreed. Not all OPEC producers want to cut deeper, and Russian oil companies are close to the end of their tether with the current cuts, so sentiment there will not be favorable for additional reductions in output, either.

There are currently two main scenarios that OPEC, Russia and their partners will discuss—either roll over the cuts through June next year when they meet early next month, or postpone a decision on the deal for early 2020, before the current cuts expire in March and again, roll over the production restrictions until June. In other words, there is no official confirmation from the cartel that deeper cuts are on the agenda.

“It is more likely that we will extend the agreement in December to send a positive message to the market. The Saudis don’t want oil prices to fall, they want to put a floor under the prices because of the [Aramco] IPO,” a source from OPEC told Reuters earlier this month.

Russia, on the other hand, continues to exceed its production quota under the OPEC+ agreement. It had committed to produce 11.19 million bpd, but this month, like most of the year, it produced more, with the average for November 1-26 at 11.24 million bpd, according to official data.

In other words, even if deeper cuts are agreed, chances are they will not be implemented.

OPEC meets on Thursday in Vienna, with the meeting with its external partners scheduled for Friday.

By Irina Slav for Oilprice.com

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