As OPEC's November meeting draws near, energy ministers from Saudi Arabia and Gulf allies told their Russian counterpart this week that they are willing to reduce their peak oil output by up to 4%. Notably, Saudi Arabia is looking to rally support for the proposed OPEC production cut announced in Algiers in September. Support for the deal has waned in recent weeks as Iraq recently called for an exemption, adding to the list of members seeking special treatment. Specifically, countries including Libya, Nigeria and Iran are looking to be exempt from the deal as their output has been hit by wars and sanctions. Saudi Arabia is clearly motivated to reach an agreement with OPEC in November, as low oil prices continue to batter the Kingdoms finances. Saudi Arabia recently stated that its foreign exchange reserves have fallen nearly 20% over the last two years, to $587 billion through March 2016. Further, the country recently cut ministers' pay by ~20% and eliminated perks for public sector employees to save additional costs. Given that Saudi Arabia continues to meet with OPEC members and Russia prior to the November 30th meeting, it would seem very likely that a deal to cut production will be reached. For the first time in a long time, it would seem that Saudi Arabia has the will and the economic motivation to alter its previous free market strategy and finalize an OPEC deal. Should OPEC decide to cut production in November, WTI would likely move higher, potentially into the $55-$60 per barrel range.
Despite Saudi Arabia's best efforts to try and coordinate an OPEC production cut in November, Iraq's oil minister, Jabar Ali al-Luaibi, is now urging oil and natural gas producers operating in Iraq to continue increasing output for the remainder of 2016 and in 2017. Luaibi recently made his remarks at a meeting of Iraqi oil industry executives in the southern oil city of Basra to review the ministry’s oilfields’ development plans. Notably, Iraq has been identified as a potential stumbling block to OPEC's provisional output cut deal due to discrepancies between its production figures and those published by the oil cartel. Shortly after OPEC agreed to reduce output in Algiers to between 32.5 - 33 million barrels per day, Iraq publicly stated that it does not trust OPEC's oil production numbers. These numbers are clearly important as they will help determine how much each individual OPEC member will have to cut production by. To try and resolve the issue, Saudi Arabia and other OPEC members have planned a number of meetings to hammer out the terms of a production cut ahead of its next official gathering on November 30th. Clearly, these recent comments from Iraq's oil minister underscores the extreme difficulty of trying to get OPEC members to reach consensus on any type of production cut. If Saudi Arabia is successful in convincing OPEC countries to cut production in November, the cartel will likely then approach other non-OPEC countries to also curtail production, a move that will further benefit the global oil markets.
A Canadian Energy expert