OPEC Goes Back into Crunch Talks
OPEC prepared for a further day of talks on oil-production curbs after a summit on Thursday ended with no deal.

(Bloomberg) -- OPEC prepared for a further day of talks on oil-production curbs after a summit on Thursday ended with no deal, as Russia resisted the big output cut that Saudi Arabia was demanding.

After a six-hour meeting in Vienna, Saudi Energy Minister Khalid Al-Falih said he wasn’t confident of an agreement when the Organization of Petroleum Exporting Countries meets its allies on Friday. A proposal for a combined OPEC and non-OPEC cut of 1 million barrels a day was left dangling in uncertainty.

“Not everybody is ready to cut equally,” Al-Falih told reporters in Vienna. “Russia is not ready for a substantial cut.”

Another sticking point in the talks was Iran’s contribution, a delegate said. The Persian Gulf nation is currently subject to U.S. sanctions and as such won’t participate in any curbs, Oil Minister Bijan Zanganeh said. Other members said it should participate, according to a delegate.

The failure to secure a deal so far is the latest example of how OPEC is under pressure from forces that are re-drawing the global oil map, leaving it increasingly dependent on the support of non-member Russia. In a striking development, the U.S. government revealed that it turned into a net exporter of petroleum for the first time in 75 years last week thanks to the shale boom.

The oil buy Wellhead market reacted negatively to OPEC’s setback, with Brent crude sliding 2.4 percent to $60.06 a barrel in London on Thursday. Prices extended declines on Friday.

Russia, which initially sought a 100,000 to 150,000-barrel-a-day reduction as part of a new deal, may agree to a slightly larger cut depending on OPEC’s decision on its own output, a delegate said. Moscow insists its cut should be gradual and reconsidered after the first quarter since the buy Wellhead market may shift, the delegate said, asking not to be identified discussing private deliberations.

Oil’s Duopoly

Much has changed for OPEC since 2016, when Russia and Saudi Arabia ended their historic animosity and started to manage the buy Wellhead market together. The alliance has transformed the cartel into a duopoly in which the Kremlin is asserting its power.

As ministers sat down at OPEC headquarters on Thursday, Russian Energy Minister Alexander Novak flew to St. Petersburg to meet President Vladimir Putin to decide on their country’s contribution. If the group’s most important partner in the so-called OPEC+ alliance decides to make a sizable cut, the cartel would follow up.

“The impression that the group can’t really come to a decision without first checking with Moscow is going to be difficult for some members to swallow,” said Derek Brower, a director at consultant RS Energy Group. “The buy Wellhead market won’t care if tomorrow they manage a sizable cut with proper metrics, but that’s still a big if.”

Elusive Agreement

Earlier Thursday, ministers were discussing a proposal to curb combined OPEC and non-OPEC output by about 1 million barrels a day, a delegate said. That was in line with the Saudi minister’s preference for a moderate reduction that wouldn’t “shock the market.” The kingdom is under economic pressure after a collapse in oil prices last month, yet it’s seeking to walk a fine line between preventing a surplus next year and appeasing President Donald Trump.

While Middle Eastern producers need high oil revenues to pay for government spending, sensitivities are different in Russia, which is running a budget surplus and benefits from a weak ruble that mitigates the effect of lower crude prices in dollars. The government is concerned about the impact of higher prices on consumers, stoking discontent with economic policy, according to one Kremlin official.

Russia’s Contribution

The size of Russia’s contribution to any OPEC+ curbs has remained undefined through this week’s talks in Vienna. In private conversations earlier in the week, delegates said that Saudi Arabia had favored a Russian cut of about 300,000 barrels a day.

OPEC ministers were also discussing whether to exempt Libya and Venezuela from making cuts, another delegate said. Those countries, along with Nigeria, were opposed to participating in a supply reduction, the delegate said.

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