By OPEC’s own reckoning, the oil market was supposed to have turned the corner by now. At the producer group’s last meeting in July, officials said they were confident a rebound in demand in the second half of 2019 would tighten the market and boost oil prices.
Instead, OPEC and its allies are preparing to gather again in Vienna this week with Brent crude trading no higher than it was then, stymied by demand-depressing US-China tariff battles and the onslaught of US shale supplies. Forecasts for 2020 do not offer much optimism, either, with a market glut expected in the first half. Amid that outlook, the future of the 24-country OPEC+ coalition’s 1.2 million b/d output cut agreement, which runs through the end of March, will dominate the talks.
Many analysts say the group should announce deeper cuts for longer to avoid a further price slump. So far, however, OPEC delegates have largely indicated no appetite for bolder action, lest they cede even more market share to US shale and other competitors, though Iraqi oil minister Thamir al-Ghadhban told reporters in Baghdad on Sunday that a proposal to increase the cuts to 1.6 million b/d could be considered.
For the most part, OPEC+ appears headed toward a less ambitious but more straightforward extension of the deal at the same quotas.The exact length — three, six or nine months — is still up for debate, as ministers try to work out the ambiguous prospects of US-China negotiations, the outcome of UN climate talks this week and next in Madrid, the market impact of the International Maritime Organization’s new marine fuel regulations that go into effect in January, and the geopolitical implications of a wave of civil unrest that has swept through many OPEC members, including deadly protests in Iraq and Iran.
“An extension is logical, reasonable and most likely, in view of the uncertainties,” a delegate told S&P Global Platts. The coalition may also choose to announce nothing and kick the decision down the road, closer to the deal’s end-March expiry, to gain a better view on the market — an approach advocated by Russian energy minister Alexander Novak.
OPEC is scheduled to meet Thursday, with Russia and the nine other non-OPEC allies joining the talks on Friday. A Saudi-Russia co-chaired market monitoring committee will also convene Thursday ahead of the OPEC meeting to assess member compliance with the cuts and review 2020 scenarios.
“OPEC+ … remains in a spot of bother and has few desirable options at the current juncture,” said Ehsan Khoman, an analyst with MUFG Bank.