OPEC+ talks go down to the wire, African producers dig in on baselines
Quantum Commodity Intelligence – Negotiations to thrash out a compromise deal ahead of the crunch OPEC+ meeting continued throughout Wednesday, with analysts now expecting talks to go down to the wire.
The main sticking point is believed to be baseline production levels – which are used to calculate future quotas – for a number of West African producers. Nigeria and Angola and the de facto leaders of this group, although Equatorial Guinea and the Republic of Congo are interested parties.
The West African contingent is concerned that locking in lower baselines would hinder future production targets. As it stands both Nigerian and Angola have struggled this year to make current quotas, but both have plans to get production targets back on track.
"Markets were very concerned that disagreement between Saudi Arabia and smaller African nations regarding their production levels could derail the rollover of the expected OPEC plus agreement," said Phil Flynn of The Price Futures Group.
"As a reminder, that cut is about 5 million bpd, or about 5% of daily global demand."
Saudi Arabia is widely reported to be willing to extend its additional voluntary cut of 1 million bpd into the new year, but wants broader support from the wider OPEC+ group, particularly if the Kingdom is to consider even deeper cuts.
As it stands a rollover – which includes Russia's additional 300,000 bpd reduction is seen as the most likely scenario – but analysts have raised the prospect of anything ranging from a new deal which includes deeper cuts to a complete breakdown.
The latter is seen as unlikely, but is not without precedent, with OPEC/OPEC+ talks falling apart in 2014 and more recently during the 2020 pandemic, both leading to price collapses.
On the flip side, OPEC+ has regularly come up with a last-minute compromise, knowing the alternative spells disaster for oil producers.
Price
Saudi Arabia is believed to have a Brent floor price of approximately $80/b, or around current levels, but failure to find a diplomatic solution over baselines could see prices tumble 10s of dollars, says analysts, hence the reason a compromise is the most likely scenario.
The OPEC+ meeting has already been postponed once and some believe talks could run into the weekend before coming up with a deal. But beyond that, Saudi Arabia needs to let customers know by the end of next week Official Selling Prices and term allocations for January,
In theory, talks could go beyond that point, but wrapping up a deal by Thursday afternoon's 1500 (Vienna time) scheduled ministerial meeting is seen as the option solution for the 23-member coalition.
OPEC+ initially reduced output by a headline 2 million bpd in the fourth quarter of last year, which came into effect at the start of November 2022.
In April of this year, several members of OPEC+ declared additional production cuts amounting to around 1.15 million bpd from May until the end of 2023, while Russia said it will extend its separate 500,000 bpd cut until the end of the year.
Saudi Arabia subsequently announced an additional voluntary cut of 1 million bpd from July, which has since been extended until the end of the year. Russia has also confirmed it will reduce exports by an additional 300,000 bpd until the end of December.
