The OPEC+ meeting will run into a second day after a majority of members, including Saudi Arabia, opposed Russia’s proposal for a February supply hike.
Discussions will resume at 3:30 p.m. Vienna time on Tuesday, giving ministers the chance to hold bilateral talks and consult with their home governments, delegates said. The unexpected extension of talks casts doubt on the production increase of 500,000 barrels a day the market had been expecting for February. It also calls into question similar supply boosts traders had penciled in for March and April.
Differences of opinion between Saudi Arabia and Russia, the two de-facto leaders of OPEC+, can make for tricky meetings. While Moscow appeared to be outnumbered on this occasion, the group typically requires a consensus among all members before concluding talks. Failure to reach a compromise is rare but can have damaging consequences, notably last year’s monthlong price war.
In Monday’s video conference, the initial negotiating position of Saudi Energy Minister Prince Abdulaziz bin Salman was to reverse the 500,000 barrel-a-day production increase the group made this month, delegates said. The prince, who has consistently sought to keep a tight rein on supply, also indicated he would accept rolling over current output levels into February, they said.
In his opening remarks, Prince Abdulaziz highlighted the risks to the oil market from a more infectious strain of the coronavirus, which has heightened the economic risks even as the roll-out of vaccines has buoyed prices.
“At the risk of being seen as a killjoy in the proceedings, I want to urge caution,” he said. “The new variant of the virus is a worrying and unpredictable development.”
Algeria, Nigeria, Oman, Iraq, Kuwait and the United Arab Emirates were also in favor of holding supply steady in February, delegates said, asking not to be named because the meeting was private. Kazakhstan supported Russia’s position.
Russia’s Deputy Prime Minister Alexander Novak gave no public signal about his position, saying the market was in “healthier shape” but also warning of “uncertainties ahead.” Yet behind closed doors, delegates said he reiterated his position that the alliance should boost supply by 500,000 barrels a day next month, matching January’s increase.
“Russia is currently focusing on market share while a number of other countries value prices,” Iran’s Oil Minister Bijan Namdar Zanganeh told reporters, according to the ministry’s news service Shana.
The Organization of Petroleum Exporting Countries and its allies are currently idling 7.2 million barrels a day, or about 7% of world supplies, and had planned to return a further 1.5 million barrels a day in installments over the coming months.
The group is already taking a cautious approach, agreeing in December to meet every month – rather than just a few times a year – in order to fine-tune production levels more precisely and avoid capsizing the price recovery they spent most of 2020 working to achieve.
Other prominent voices from the alliance have echoed Prince Abdulaziz’s caution. “There’s a need to be wary of the repercussions of the second wave of the pandemic,” state-run Kuwait News Agency reported on Monday, citing a statement from Oil Minister Mohammed Alfares.
OPEC Secretary-General Mohammad Barkindo said at Sunday’s preparatory meeting that “there are still many downside risks to juggle.”
Brent crude, the international benchmark, fell 1% to $51.31 a barrel as of 6:32 p.m. in London. Prices rallied earlier in the day on strong demand from Asia due to freezing weather, but faltered later amid signs of widening lockdowns in Europe.
The case for another small OPEC+ output increase in February is underpinned by a recovery in the oil prices, which have gained more than a third since the emergence of the first Covid vaccines last year.
Russia’s Novak said last month that OPEC+ should proceed with its supply increase because prices are in an optimal range of $45 to $55 a barrel. If OPEC+ refrains from bolstering exports, its competitors will simply fill the gap, he said.
Yet there are also reasons to think the group will take a more cautious approach.
Restrictions on movement are still in place in a number of countries amid a new strain of the virus, Barkindo said. It’s too soon to know how key sectors of the economy will be affected, and for the tourism and leisure industries the return to pre-crisis levels could take a couple of years.
Oil inventories in developed nations remain 163 million barrels above their five-year average, Barkindo added. Despite the market’s rebound, crude prices are far below the levels most OPEC members need to cover government spending.
“With headlines regarding surging virus cases in the western world being joined by concerns emanating from Asia, including Thailand and Japan, OPEC+ is keen to take a cautious approach, a stance supported by Saudi Arabia,” said Amrita Sen, co-founder of consultant Energy Aspects Ltd. in London.