Saudi wants deeper Opec+ oil cuts to bolster Aramco IPO: report
02 December 2019
Saudi Arabia wants the Organisation of Petroleum Exporting Countries (Opec) and other oil producing nations to deepen production cuts under a deal that would be in place till June 2020 to give a big boost to oil market ahead of the listing of Saudi Aramco, reports citing sources close to the development said.
The deal if accepted by Opec member countries and other producer, would add at least 400,000 barrels per day (bpd) to existing cuts of 1.2 million bpd or 1.2 per cent of global supply, according to a Reuters report.
The report citing two sources said the latest Opec analysis, drawn up by Opec’s Economic Commission Board (ECB), showed a large oversupply and buildup in inventories in the first half of 2020, if no additional cuts were made.
Russia, a key non-Opec oil producer, has so far opposed deeper cuts or a longer extension. But Moscow has often taken a tough stance before every meeting before approving the policy. The report said Saudi Arabia was working on convincing Russia.
Riyadh needs high oil prices to balance its budget and support the pricing for the Aramco initial public offering (IPO), which could be the world’s biggest.
Russia, the world’s second biggest oil exporter after Saudi Arabia, also benefits from a higher oil price and has been working with Opec on cuts to prevent an oil glut building as a result of booming production from the United States, which has climbed to become the world’s crude producer.
The price of Benchmark Brent oil - LCOc1 - rose more than 2 per cent to nearly $62 per barrel today on the news about the possibility of deeper cuts.
Prince Abdulaziz bin Salman who will represent Saudi Arabia in Vienna during this week’s Opec meeting as Saudi energy minister, is known as a tough negotiator and is expected to ensure oil prices stay high enough for Aramco’s IPO, reports said.
The IPO will be priced on 5 December, the same day Opec meets in Vienna. The Opec+ grouping holds talks on 6 December.
Saudi officials, including Prince Abdulaziz, have insisted on stricter compliance with the current cuts, especially as countries such as Iraq and Nigeria have produced well above their quotas while Riyadh has cut more than demanded.
The Saudis are also lobbying other producers to deepen cuts and have been signaling that they are ready to continue taking the biggest burden and to cut well in excess of their target.
A price rise may hurt Opec and its allies because it further bolsters US production and allow US shale oil producers to grab a bigger market share.
“If WTI goes up to $60 per barrel, there will be more shale,” one of the sources familiar with Opec talks said, warning against much steeper output cuts.