Algeria proposes 1.1 million bpd OPEC cut

The November 28 meeting in Vienna was planned to discuss the contribution that producers outside OPEC will make to a proposed supply-limiting agreement.

“The market is now quite pressured by the uncertainties raised from various reports, including Saudi Arabia pulling out of Monday’s talks with non-OPEC nations”, Seo Sang-young, a Seoul-based market strategist at Kiwoom Securities Co., said by phone. Pessimism about prospects for an agreement sent oil prices lower on Friday.

The price of Brent crude, the worldwide benchmark, rose 20 cents to $49.28/barrel following this news, from an earlier low of $48.56/barrel.

Apparently, under the pretext of lack of agreement among members, Saudi Arabia refuses to attend the Monday meeting, while in fact, Saudis, as OPEC’s largest oil producers plan to apply pressure on certain countries in order to dictate their policies to the member states.

Saudi Arabia Minister of Energy, Industry and Mineral Resources Khalid al-Falih (R) and Russian Energy Minister Alexander Novak attend a press conference after meeting in Riyadh, Saudi Arabia, on October 23, 2016. Iraq has said it will participate in output curbs, having initially resisted joining in the effort.

The current proposal for a 4-4.5% output cut with exemptions for Nigeria and Libya is closer to the Saudi opening negotiation position for equitable and distributed cuts across the cartel, as this would minimize the budget impact of cuts on Saudi and GCC. The chart below shows how September’s informal agreement initially lifted the oil price, but growing scepticism that a deal could be reached and whether it would anyway be enough to rebalance the world oil market soon took the heat out of the price.

Adding to the difficulties is the fierce rivalry between Shia Iran and Sunni Saudi Arabia, engaged in a proxy war in Yemen and backing different sides in Syria.

Commodity analysts’ expectations are not high: “Oil: Why An OPEC Production Cut Is Unlikely”.

Last week, oil prices fell sharply on Friday amid uncertainty over whether the Organization of the Petroleum Exporting Countries can reach an agreement to cut production and prop up markets. While Saudi Arabia is pushing for a reduction, Iran is insisting it should be allowed to keep increasing.

Saudi Arabia wants an Opec deal in place before conversations with other producers such as Russian Federation, one delegate said. While Saudi Arabia produces one in three barrels of oil from OPEC, Iran and Iraq together produce nearly one in four barrels.

The steady growth in the number of active oil rigs in the US, which is typically viewed as a proxy for activity in the sector, is also weighing on sentiment.

But higher oil prices might actually help the global economy, according to research by Goldman Sachs published by Bloomberg.