Opec looked at extra 1-1.5% cuts, could revive proposal

Opec discussed cutting its oil output by a further 1-1.5 per cent when it met last week, three sources familiar with the matter said, and could revisit the proposal should inventories remain high and continue to weigh on prices.

The Organisation of the Petroleum Exporting Countries and non-member producers ultimately decided at their May 25 meeting to extend their existing supply-cutting agreement for nine months, although oil ministers including Saudi Arabia's Khalid Al Falih confirmed deeper curbs had been debated.

One of the sources said the idea floated was to widen Opec's supply cut by about 300,000 barrels per day (bpd).

That would equate to a further curb of about one per cent of April output of nearly 32 million bpd and bring Opec's total pledged cut to 1.5 million bpd, from 1.2 million bpd.

"They wanted to do some scenarios and get around 300,000 bpd of extra cuts to be distributed among everyone," the source, who declined to be identified, said. "But I think they decided to wait and see how the market will react first."

Opec officials nonetheless hope an inventory glut will ease in the next few months as market fundamentals move closer to balance. Opec is not scheduled to meet again to set policy until November.

"By the next meeting, if prices and the situation remain like this, they will have to do something... Everyone will be on board (for more cuts) if prices remain like they are now," the source said, adding that he expected the market and prices to improve by the third quarter.

A second source familiar with the matter said "everything is possible", when asked whether the option of a deeper cut could be revived.

A third source, an Opec delegate, was sceptical that a larger cut would be agreed on by all parties, including non-Opec producers. "I doubt it," that source said. "There was a proposal for a deeper cut, but it didn't work."

A fourth source, also an Opec delegate, was sceptical for the same reason.

"To ensure a proposal can be feasible, you need to see who can buy in," that delegate said. "I believe the number of countries who can buy in will be few. However, continuing the current agreement is much more acceptable even for a longer period of time until the rebalancing is achieved."

Source: Khaleej Times