OPEC NOTES DEC 7: Saudi Tough love and negative price reinforcement is motivating OPEC closer to a deal to cut in 1 mbd range; Russia signals higher cut above 150k; Non-OPEC cut cooperation promising
VIENNA, AUSTRIA – Good Friday morning from Vienna where OPEC ministers are continuing discussions on a cut and later meet with their non-OPEC counterparts in the OPEC+ coalition to address market concerns about oversupply. We maintain our forecast of an OPEC+ deal that will achieve cuts in the range of 1.1 million barrels per day (b/d) but reaching 1.3 to 1.4 million b/d when you add involuntary cuts from Iran sanctions. We still believe the odds of no deal are very low. Seeing red in oil prices yesterday and today will serve as powerful motivation that OPEC members need to get a cut agreement.
This is the last issue of our daily “OPEC Notes” but please also follow our updates in real time on Twitter @joemcmonigle. We will also have a wrap-up note after the OPEC+ meeting.
Key Event Today - Second Day of OPEC Deliberations (morning) and OPEC+ Ministerial meeting (afternoon).
Saudi tough love and negative price pain is motivating OPEC closer to 1 million b/d cut deal –The market signaled its disapproval with prices trading lower after OPEC canceled its press conference on Thursday. The Saudis want a deal but are trying not to look too eager so they don't end up doing all the cutting. Thursday’s meeting amounted to a venting session by other members upset with Saudi production hikes in October and November that sent prices down 30 percent. In our view, Minister al-Falih’s comments last night of not being confident about a deal is really some tough love for wayward OPEC members. The prospect of no deal is like the Sword of Damocles as producers realize that oil prices crash without a cut agreement. Delegates this morning were positive suggesting a deal is in the works for a combined OPEC+ cut of about 1 million b/d – in line with our forecasts earlier this week. When you add involuntary cuts due to Iran sanctions, the final number jumps to 1.3 to 1.4 million b/d. Bloomberg reported a OPEC cut of 650,000 b/d and non-OPEC cut of 350,000 b/d, citing an OPEC delegate attending the closed door session.
Russia Signals Higher Cuts Above 150,000 b/d– Despite constant news reports that Russia was backing away from cuts, we have maintained our view that Russia was on board. Frankly, it always seemed hard for us to believe that Russia would not be aligned with Saudi interests after two years of close cooperation and capped off by the Putin-MBS meeting at the G20 in Argentina. As we said in our earlier OPEC Notes this week, we see the Russia cuts hitting about 200,000 b/d or more with some phased-in flexibility. This morning Reuters is reporting the Minister Novak is holding bilateral meetings with the Iranian and Saudi ministers ahead of the OPEC+ ministerial and further that Russia is open to cuts higher than 150,000 so now looking like it will be in line with our projections.
Promising Non-OPEC Cooperation in Cuts. Non-OPEC ministers are arriving at OPEC headquarters today for the OPEC+ ministerial meeting this afternoon and making positive comments about the need to cooperate in cuts. Other than the focus on Russia, it appears that there will be little controversy in the non-OPEC participation in the cuts.