The Organization of Petroleum Exporting Countries (OPEC) met on Thursday in Vienna for six hours but did not reach an agreement. The group discussed implementing additional production cuts in order to combat depressing market conditions forecasted for the first half of 2020. Ministers met late into the night at OPEC headquarters in Vienna before they finally gave up for the day.
Prince Abdulaziz bin Salman Al-Saud, center, Minister of Energy of Saudi Arabia looks prior to the … [+] start of a meeting of the Organization of the Petroleum Exporting Countries, OPEC, at their headquarters in Vienna, Austria, Thursday, Dec. 5, 2019. (AP Photo/Ronald Zak)
By that point, markets in Europe and in the U.S. had closed. Oil prices seesawed during the meeting, but ended the day largely unchanged with both Brent and WTI each finishing a few cents higher.
Earlier in the day, the Joint Ministerial Monitoring Committee (JMMC), a smaller group of ministers that monitors oil production and for the larger OPEC+ group recommended that the group cut 500,000 barrels per day cut for the first quarter of 2020. Tensions were high, as OPEC ministers discussed how to distribute these cuts between producer nations, especially because some OPEC producers have reduced their cut production while others continue to cheat and over-produce their quotas. Saudi Arabia is reported to have threatened a 400,000 barrel per day production surge if certain countries don’t stop cheating on their quotas. At one point, the Angolan oil minister, whose country has complied with its production cuts, left the meeting and apparently said he wanted to quit OPEC, though he later returned.
The larger OPEC+ group meets on Friday and is expected to is expected to reach an agreement. OPEC plans shoulder 2/3 of the 500,000 barrel per day production cut and OPEC’s partners, which include Russia, are expected to shoulder 1/3 of the cut.
Saudi Oil Minister, Prince Abdulaziz bin Salman, arrives at the OPEC+ meeting on December 6, … [+] 2019
Ellen R. Wald
The problem for markets is that these production cuts will be primarily cosmetic and are unlikely to result in a significant reduction in supply. This is because OPEC’s collective production is already below its current targets. Reducing the targets by an additional, collective 500,000 bpd will just reflect the current situation rather than alter the fundamentals. On the OPEC+ side, Russia has apparently secured the group’s approval to exclude its condensate production from its official accounting. Condensates are liquid hydrocarbons that are the byproduct of natural gas production. They are sometimes mixed with crude oil and/or exported as such. OPEC members generally report condensates separately from crude oil as it suits their purposes.
Meanwhile, oil production in the United States reached 12.9 million barrels per day earlier this week, and trade tensions between China and the U.S. rule market sentiment. Oil prices are more likely to react to positive or negative comments by the Trump administration regarding ongoing trade negotiations with China than to OPEC’s attempts to manage the supply of oil. Thus, while oil prices may experience a bump if or when OPEC and Russia announce an agreement on oil production, the market impact over the next several months will likely be muted.