OPEC Said to Remain Split as Russia Says It Won’t Join Talks

Updated on
  • More than 46 hours of talks in Vienna fail to finalize accord
  • Brent crude drops in London on skepticism deal can be reached

Norrish: OPEC Likely Agrees to 'Face-Saving' Measure

OPEC officials failed to resolve internal differences that stand in the way of an agreement to cut oil production, while Russia dimmed the prospects for a broader deal to revive prices by saying it’s not planning to attend crucial talks on Wednesday.

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With just one day left before ministers from the Organization of Petroleum Exporting Countries meet to finalize the first decline in production in eight years, the foundations for a deal were looking increasingly shaky on Tuesday.

“I don’t know,” if there will be an agreement and Indonesia hasn’t decided whether it’s willing to cut production, Minister of Energy Ignasius Jonan told reporters in Vienna. “The feeling today is mixed."

After an all-day meeting on Monday -- bringing the total length of deliberations in Vienna in the past month to more than 46 hours -- Iraq and Iran continued to resist calls to cut output, according to an OPEC delegate who asked not to be named due to the sensitivity of the negotiations. OPEC officials agreed to refer the matter to ministers for further consideration, a repeat of the outcome of last week’s meeting.

The proposal, as initially agreed in Algiers in September, would trim production by about 1.2 million barrels a day from October levels, but it’s unclear whether there’s enough support for a deal on Wednesday, the delegate said. Benchmark Brent crude fell as much as 1.8 percent to $47.45 a barrel in London Tuesday, after touching $48.81 on Monday.

Inside the meeting, countries fought to the very last barrel.

While Iraq finally appeared to accept the OPEC supply estimates known as “secondary sources” that would determine the basis for reducing supply, it was still insisting that it should be allowed to freeze at the October level of 4.6 million barrels a day, according to one delegate. When applied to Iraq’s own output estimate of 4.8 million barrels a day, the proposal for OPEC members to make an average cut of 4 to 5 percent would take production to the roughly the same level.

Algeria proposed Iraq cut production by 240,000 barrels a day from the October “secondary sources” level, said two delegates.

The Go-Between

Iran suggested a deal whereby it freezes production at 3.975 million barrels a day, or about 200,000 barrels a day above its current output, according to two OPEC delegates with knowledge of the talks. Saudi Arabia countered with a proposal for Iran to cap output at 3.707 million barrels a day, roughly its current level.

In an attempt to break the impasse, Algeria, which is acting as a go-between in the talks, offered an alternative that would see Iran freezing at 3.795 million barrels a day, the delegates said.

As negotiations in Vienna unfolded Monday, the official news service for Iran’s oil ministry, Shana, published an article on the country’s position. The report quoted Oil Minister Bijan Namdar Zanganeh as saying that reviving Iranian oil output was "the national will and demand of the Iranian people."

In the article, Zanganeh said Iran was excluded from the production-cut decision adopted in late September in Algiers. Saudi Arabia is opposed to exempting Iran completely from the deal, so far only accepting Libya and Nigeria as special cases.

Negotiation Tactics

On Sunday, Khalid Al-Falih, the Saudi oil minister, for the first time floated the possibility of leaving Vienna without an agreement. It’s unclear whether the minister changed his mind about the deal’s merits, or is trying to boost his negotiating position with Iran and Iraq.

"Saudi Arabia and Iran are all playing very strong negotiation tactics," said Abhishek Deshpande, chief energy analyst at Natixis SA. "The problem for Saudi Arabia is that this isn’t the 1980s and 1990s, when it could use its clout and expect others to follow. Today members like Iran and Iraq are equally strong and their agenda is to ensure they get a large market share.”

As OPEC tries to resolve its own differences, the group is also asking other big producers including Russia to reduce output by as much as 600,000 barrels a day. The Kremlin so far has resisted requests that it join the cut, offering instead to freeze production at current levels, provided OPEC does a deal first.

Energy Minister Alexander Novak said Tuesday that he has no plans to visit Vienna on Wednesday, but that Russia is ready to talk if the group reaches an internal consensus.

Without an OPEC cut, the International Energy Agency predicts that the oil market will remain in surplus for a fourth year in 2017, which could cause prices to fall.