OPEC's largest producer Saudi Arabia and its key non-OPEC partner in the production cut deal, Russia, are discussing lifting the combined oil production of the countries from the pact by some 1 million bpd, potentially easing the cuts in response to supply concerns amid rising oil prices, Reuters reported on Friday, citing sources familiar with the talks.
This week is St. Petersburg, Saudi Arabia and Russia are leading those early talks on supply on the sidelines of an economic forum, which the energy ministers of Saudi Arabia, Russia, and OPEC's current president, the United Arab Emirates (UAE), are attending.
OPEC and non-OPEC countries officially meet in Vienna on June 22 and they could make a decision to ease the cuts then.
"The talks now are to bring compliance down to the 100 percent level, more for OPEC rather than for non-OPEC," one source told Reuters.
OPEC and friends have been boasting record high compliance rates exceeding 100 percent this year, helped along by Venezuela's inadvertent stellar compliance because of its plunging production. Compliance to the cuts for the OPEC/non-OPEC group in April has been estimated at 152 percent.
Until recently, OPEC and allies were constantly issuing comments that they would be sticking to the production cuts through the end of 2018, even at the risk of overtightening the market. But now the plummeting Venezuelan production and the coming U.S. sanctions on Iran that led the oil price rally appear to have changed OPEC and Russia's thinking. Related: Shell Makes Large Deepwater Discovery In Gulf Of Mexico
Yet, it's not clear who would have the capacity to boost production except for Russia and for Saudi Arabia and its fellow Gulf producers, according to Reuters' sources.
"Only a few members have the capability to increase production, so implementation will be complicated," one OPEC source told Reuters.
"$80 per barrel is way higher than expected … it is surprising and unexpected for us," Russia's Energy Minister Alexander Novak
told the Financial Times in an interview in St. Petersburg.
"We cannot argue that higher prices are always a good thing for producers. When prices are way too high, it leads to the market being overheated and it results in destabilisation and excess supply," Novak noted.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More
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