VIENNA, NOVEMBER 30 – OPEC pulled a rabbit out of its hat and produced a cut plan that is half real. Nearly every minister on Tuesday was privately very grim about the prospects for a deal.
So what changed? Iran agreed to a freeze but will maintain it is not a freeze. And more significantly, Russia pledged it would cut production instead of its prior position to just freeze. The Saudi's privately admit that Iran is at peak production in the short term but Saudi views Russia as its chief competitor for market share. There would not be a deal without Russia.
The OPEC agreement announced was to cut production by 1.2 Mbd to a ceiling of 32.5 Mbd. In our view, we think you can only count on cuts from Saudi Arabia (-486), Qatar (-30), Kuwait (-131) and UAE (-131) so the real cut is about 786 Kbd. Not insignificant.
Moreover, the OPEC President said the deal was "contingent" on non-OPEC cuts of 600 Kbd although the written agreement is silent on the very specific language used in the press conference. He said Russia would do half of that amount at 300 Kbd but advised the press corps to look for a coming press conference in Moscow for more details. Platts is reporting tonight that the Russian energy ministry said it would “gradually” work up to 300 Kbd in cuts so the deal is already on shaky ground. It’s not clear where the other 300 Kbd comes from since no further details were announced.
OPEC will meet with other non-OPEC producers on December 9 in Doha to discuss the non-OPEC commitment. We are sure they will cobble together an announcement of 600k from non-OPEC but we think this number and, especially the Russian amount, are the weak links in the deal. We think the entire 600 Kbd is dubious.
(To read the entire “Dispatch from Vienna” notes from today as well as our prior notes, email sales@hedgeye.com.)
