Struggle against African members weighs on talks

(Bloomberg) – OPEC+ ministers are meeting on Sunday to hammer out an oil production deal after a last-minute fight with African members threatened to derail the rally.

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A day of side meetings and shuttles between Vienna hotels on Saturday sought to iron out the unexpected row. The UAE was pushing for a change in how its production cuts are measured, delegates said. But the UAE’s gain would come at the expense of African countries being asked to give up some of their unused quota – a politically unpalatable option for them.

African ministers met with Saudi Energy Minister Abdulaziz bin Salman on Saturday and pressure was mounting on them to back down. African ministers were due to meet again on Sunday morning before the main event, a delegate said.

Just two months after the group unveiled a surprise cut, a further cut is being discussed, although it’s not a done deal, delegates said. Weak economic data from China and recession fears are weighing on oil prices, which fell 11% in May.

In the background, the war in Ukraine and its impact on the oil markets. Sanctions have redrawn the oil map and OPEC ally Russia is now sending more oil to Asia, competing with Saudi Arabia in its traditional market. Moreover, there is no indication that Russia is making the production cuts it has promised.

Key developments:

  • A reduction in production is an option discussed by the group, according to the delegates.

  • According to RBC’s Helima Croft, the revised reference levels for African countries are “the main unresolved issue”.

  • Bloomberg, Reuters and The Wall Street Journal were barred from attending headquarters for the meeting. Journalists continue to interview delegates on the sidelines.

(The timestamps correspond to the local time of Vienna)

Night negotiations (9:48 a.m.)

Talks dragged into the early hours of Sunday in Vienna as delegates tried to find a way forward. Member delegations were still on the move this morning for last-minute negotiations. The first official meeting doesn’t start until 11 a.m. local time.

African Quota Line (7:45)

African members of the OPEC+ group are being pressured to give up unused parts of their production targets in order to redistribute them to the United Arab Emirates, which has long demanded a higher baseline for its own production. Increased production capacity in Abu Dhabi, the largest of the emirates, was not reflected in the initial starting points for agreed production cuts in 2020. This has long been a problem for the Saudi ally, who repeatedly pushed for a higher share of the group. overall exit target.

Four of West Africa’s five OPEC members are unable to meet their production targets, with their combined output in May more than 800,000 barrels per day below the volume they are allowed to pump . Angola and Nigeria, in particular, have struggled to meet their production targets almost since their introduction three years ago.

But even if they cannot fully utilize their production quotas, African nations may not want to give them up. Several of them are looking for new investments to boost production in the coming years and none will want to give up the right to use this new capacity when, or if, it comes online. The Saudis will have to find a way to encourage OPEC West African countries to play ball.

Oil Market Oscillation (7:00 a.m.)

To cut or not to cut, that is the question facing the OPEC+ ministers gathered in Vienna today. A week ago, a renewal of existing production targets seemed the most likely outcome. But things have changed in the past seven days. Markets faltered, with U.S. crude plunging below $70 a barrel before recovering at the weekend. Concerns over the strength of China’s oil demand recovery are weighing on market sentiment, while production from several members of the producer group is above expectations. That, combined with the Saudi oil minister’s warning that short sellers of oil should “be careful”, raised the prospect of a production cut.

Russian production

In the background of this meeting is a question about Russian production.

There is no sign of Russia’s promised 500,000 barrels per day production cut in the country’s exports – and that’s what matters to the world market. Three months later, crude shipments in the four weeks to May 28 were more than 1.4 million barrels per day higher than they were at the end of last year and 270,000 barrels higher. per day in February, the reference month for the promised reduction.

Overseas shipments of refined products were down, but less than they normally do at this time of year. And refining cycles, which typically drop for seasonal maintenance, rebounded in late May.

Smiles all around (Saturday)

OPEC’s two main Persian Gulf exporters, Saudi Arabia and the United Arab Emirates, emerged from Saturday’s meeting with a brilliant show of unity – their respective ministers holding hands and adorned with smiles as They came out of the secretariat building under the Viennese sun. Yet each has its own priorities and for Abu Dhabi, that means having its increased production capacity officially recognized by the OPEC quota system with a higher production base. Whether or not they get that acceptance can determine the fate of today’s negotiations.

–With help from Fiona MacDonald and Nayla Razzouk.

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