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OPEC to Seek More Oil-Output Cuts from Nonmembers

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Written by Benoit Faucon and Summer Said

Click HERE to Read the Article by the Publisher.


OPEC’s agreement to slash oil output faces its first test Saturday, when it asks producers outside the cartel to make production-cut commitments intended to amplify the effect of the landmark deal.

The Organization of the Petroleum Exporting Countries has invited representatives from 14 countries to meet in Vienna on Saturday to discuss joining the cartel after it agreed last week to slash 1.2 million barrels of daily oil production—more than 1% of global output. In all, OPEC wants its non-OPEC counterparts to slash 600,000 barrels a day.

Four countries have committed to attend Saturday: Russia, Oman, Bahrain and Azerbaijan. OPEC officials believe Mexico and Kazakhstan are also likely to come.

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Their participation is crucial, OPEC officials say. Without it, the oil-price gains of the past week would be imperiled, and the OPEC production deal itself could be severely undermined, OPEC officials said.

Saudi Arabia “absolutely” expects non-OPEC producers to reduce their output, one of these officials said. The kingdom helped orchestrate the first OPEC production cut in eight years by promising that non-OPEC producers would join in.

Oil-producing countries want to remove supply from the market, bring it back into balance with demand and force prices to rise after over two years of cheap energy. Oil prices have soared more than 15% since OPEC announced its first production-cut deal since 2008, with Brent crude, the international benchmark, rising above $55 a barrel for the first time this year on Monday.

Saturday’s meeting is a potential “hurdle for the bulls,” saidDominick Chirichella’s Energy Market Analysis in a note Monday.

On Saturday, OPEC plans to press its counterparts to agree to specific cuts and allow production to be monitored by a committee with three OPEC members and two non-OPEC members.

In an interview, OPEC Secretary General Mohammad Barkindo said it would be “the first time OPEC [and] non-OPEC will agree to a joint, binding supply-management agreement.” At a speech in India on Monday, Mr. Barkindo said OPEC had “institutionalized” its ability to cooperate with non-OPEC countries.

But getting non-OPEC members to agree may be a tougher sell than expected.

Russia, the world’s largest producer of crude oil, has already said it would “gradually” reduce production by 300,000 barrels a day next year in coordination with OPEC. It didn’t give a time frame, as OPEC members did last week, nor did it say it would accept international monitoring of its output.

In the interview, Mr. Barkindo said Russia had “agreed in principle” to have a joint committee overseeing the cuts.

“Details will be discussed and agreed upon” Saturday, he said.

Moscow’s participation was essential to OPEC’s ability to agree last week, people familiar with the matter said. The first call Saudi energy minister Khalid al-Falih made after the OPEC deal was sealed was to Russian energy minister Alexander Novak, to get assurances that Moscow would commit to cuts, the people said.

Russia has said it would join OPEC output cuts in the past, only to renege.

In a note Monday, Vienna-based oil consultancy JBC said it was “quite skeptical that [a Russian output cut] will actually happen.” Russian oil production reached a new post-Soviet high in November of 11.22 million barrels a day.

The other countries expected to attend talks in Vienna offer a complex picture.

Kazakhstan was reluctant to join production cuts this year. A giant new oil field there, called Kashagan, recently started producing, and the cash-strapped Central Asian country is expected to increase output by 210,000 barrels a day to 1.77 million barrels a day in 2017, according to OPEC projections.

Kazakhstan hasn’t confirmed its participation and didn’t respond to requests for comment.

Oman and Bahrain produce 1 million barrels a day and 200,000 barrels a day, respectively, but their output is supposed to stagnate in 2017, according to OPEC. That means cutting may be easier to swallow there. Officials in these countries declined to comment on their production plans beyond confirming their attendance.

In Azerbaijan, where output is set to fall by 30,000 barrels a day to 840,000 barrels a day in 2017, energy minister Natig Aliyev said in a news release that he would support the OPEC deal. Azeri officials didn’t respond to requests for comment.

In Mexico, where oil companies produce 2.1 million barrels a day, the country’s output is expected to fall next year by almost 10%.


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Written by Benoit Faucon and Summer Said

Click HERE to Read the Article by the Publisher.

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