Saudi Arabia and Russia are on the verge of agreeing on a deal to cut oil production, defying calls from US President Donald Trump to leave the taps open to keep prices low.
The Opec oil cartel and allies led by Russia said in Vienna on Wednesday there was a need to reduce output, responding to the near 30 per cent drop in benchmark crude prices in the past two months.
But the group, widely known as Opec+, has not yet decided on how big the supply reduction will be, with Russia dragging its feet over how much it was willing to reduce supply.
“We did not discuss numbers . . . we just agreed on a cut,” Mohammed Al Rumhy, Oman’s oil minister said, although he said technical analysts had endorsed a reduction of at least 1m barrels a day.
“We [members of the monitoring committee including Saudi Arabia and Russia] cannot argue with the recommendation,” he added, saying a decision would be made in the coming days.
Saudi Arabia, the de facto Opec leader, is also facing unprecedented pressure from the US, its key western ally, with the US president praising the drop in oil prices as a “tax cut” for the world. Mr Trump has backed the kingdom’s Mohammed bin Salman, despite increasing disquiet in Washington over the crown prince’s alleged role in the murder of dissident journalist Jamal Khashoggi.
Trump tweeted on Wednesday as energy ministers held a technical meeting in Vienna: “Hopefully Opec will be keeping oil flows as is, not restricted. The World does not want to see, or need, higher oil prices!”
Opec oil ministers will meet tomorrow to decide on the size of the planned production cut, with many emphasising the need to take action or risk a severe supply glut developing in the coming months. The broader deal with oil producers outside the cartel, including Russia, takes place on Friday.
Failure to reach a deal would probably push oil prices even lower after having already fallen from a four-year high above $86 a barrel in early October to just above $60 a barrel today.
Analysts said the group needed to find a way to reduce output without attracting more ire from the US, which may result in them making a smaller cut than anticipated or fudging the outcome of the meeting.
“I think at this stage a conservative cut is most likely,” said Ann-Louise Hittle, a consultant at Wood Mackenzie.
“They’re trying to manage expectations and not disappoint the oil market, but given the pressure they are under there could be some effort to disguise what they are doing.”
Saudi Arabia believes a cut of at least 1m b/d — an amount roughly equal to 1 per cent of global supply — must be removed from the market to stop a substantial stock build in the first half of next year.
The cut could, however, be as high as 1.5m b/d, with growing concerns about oversupply in the market.
US shale production has been rising fast with the country becoming the world’s largest oil producer, pumping well in excess of 11m b/d or more than one in every 10 barrels produced globally.
At the same time Saudi Arabia and Russia, which have co-ordinated on oil supplies for the past two years, raised output to record levels partly in response to calls from Mr Trump this summer as the US moved to reimpose sanctions on Iran’s energy exports.
The Trump administration then issued more waivers than expected to Iran’s customers, however, leaving global supplies at an elevated level at a time when questions have been growing about the strength of the world economy.
Mr Trump has kept pressure on the group regardless, hailing the falling oil price as a major policy win for his administration.
Brian Hook, the US’s special representative on Iran, met with the Saudi Arabian energy minister on Wednesday in Vienna, according to two people familiar with the meeting. The Trump administration is keen to increase pressure on Iran’s oil exports in the coming months, the people said, suggesting they will not want Saudi Arabia to overtighten the market.
Even as Saudi officials denied the meeting took place, a US state department spokesperson confirmed they “met briefly” without elaborating further. Riyadh and Tehran are fierce regional rivals but tend to co-operate within Opec, with both countries dependent on oil revenues.