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OPEC+ inched closer to delaying its January output increase, with Russia actively discussing keeping its current curbs for an extra three months as oil markets weaken.
The producer group, led by Russia and Saudi Arabia, has been dropping hints for weeks that its plan to add almost 2 million barrels a day to oil markets next year may not be such a good idea as the demand recovery falters.
Since President Vladimir Putin first said he was open to a delay, the outlook has worsened. France, Germany and the U.K. are going back into lockdown to curb the spread of the coronavirus, while the U.S. has been seeing record numbers of daily cases.
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Oil slumped 10% in London the week of Oct. 26, with traders seeing signs of weaker demand, just as a peace deal in Libya floods the market with additional supplies. Crude futures dipped an additional 5% in the early hours of Nov. 2, dropping to almost $35 a barrel, but recouped those losses as news emerged from Moscow.
On Nov. 2, Russian oil companies discussed with Energy Minister Alexander Novak the possibility of delaying the easing of OPEC+ output cuts by three months, people familiar with the matter said.
There also were talks about potentially deepening the current curbs by the Organization of Petroleum Exporting Countries and its allies, but that was not considered to be the base case, said one person. The main focus was a possible delay, the people said.
Russian companies are contributing the biggest tranche of production cuts after Saudi Arabia, so any change to the terms of the agreement between OPEC+ requires their cooperation. Novak typically meets with senior executives from the country’s oil producers before OPEC+ policy decisions, the next of which is scheduled for the end of November.
No final decision was made at the meeting and the nation “hasn’t prepared its official position,” Deputy Energy Minister Pavel Sorokin said later Nov. 2 at the Moscow Exchange Forum. Russia will do that after Nov. 17, when the OPEC+ Joint Ministerial Monitoring Committee will meet for a discussion, he added.
An extension of the current cuts is under discussion in the government, a person familiar with the situation said. However, Russia has not yet formed a position on what the next OPEC+ move should be, he said.
OPEC+ agreed in April to remove 9.7 million barrels a day from the market, a deal that boosted prices out of a historic slump caused by the pandemic. As the global economy recovered, the group eased those curbs by 2 million barrels a day in August.
The market absorbed that extra crude and prices remained stable through the summer, but by mid-September a resurgent virus started to change the picture.
Saudi Energy Minister Prince Abdulaziz Bin Salman, the driving force behind the OPEC+ output agreement, started warning that he won’t stand by and see the hard-won recovery in oil prices get wiped out by a second wave of COVID-19. In October, Novak joined him in pledging a proactive response to an increasingly precarious oil market.
Moscow and Riyadh don’t only have to contend with the demand impact of the pandemic. There are signs that the disciplined implementation of the production cuts, which has been a key part of their success, is crumbling.
OPEC production increased significantly last month, according to a Bloomberg survey. Output rose by 470,000 barrels a day to 24.74 million a day.
Extra production from war-torn Libya, which is exempt from making cuts, was part of the problem. But Iraq and Nigeria, both of which have habitually flouted their output limits, also pumped more.
Olga Tanas, Dina Khrennikova, Irina Reznik and Ilya Arkhipov were the primary contributors to this report.
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