Deepen oil cuts to boost Aramco IPO, Saudi to OPEC+

on Dec 2, 2019
Updated: Mar 11, 2020
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  • The Organization of the Petroleum Exporting Countries and other producers (OPEC+) will this week meet in Vienna to discuss a deal that could possibly add at a minimum of 400,000 barrels per day (BPD) to existing cuts of 1.2 million BPD
  • If the current supply cut deal is reached, it is expected to run until the end of next year’s first quarter
  • But the Saudi wants OPEC+ to institute further supply cuts to boost oil prices ahead of Aramco’s listing

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Persian Gulf officials said that Saudi Arabia would be vouching
for augmentation of oil supply cuts through to the end of June 2020 in a stakeholder
meeting set to be held this Thursday and Friday.

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As we approach this week’s OPEC+ meeting, the oil market has been stalling as players
remain anxious about the outcome of the gathering. There have been
international talks to boost compliance to agreed cuts. But talks about maintaining
and possibly increasing the cuts that are expected deepen Saudi’s efforts are
being overshadowed by the growing unrest among Middle Easterners.

Luckily, a decent section of OPEC+ players supports the deal to
extend the production and supply cuts to mid-2020. If implemented, Saudi will
be looking to ride on the deal to deliver a positive surprise to the market
before the listing of Saudi Aramco, two sources familiar
with the matter told CNBC.

The 5th and 6th members’ meeting that will bring
together the Organization of the Petroleum Exporting Countries and other
producers (OPEC+) is meant to make good on a resolution to add at least
400,000 barrels per day (BPD) to existing cuts of 1.2 million BPD. The current
deal ends in March next year but a possible extension is likely to be reached from
the meeting.

“They (the Saudis) want to surprise the market,” a source said.

A recent OPEC report drafted by OPEC’s Economic Commission
Board (ECB) highlighted a high possibility of large inventory build-ups in the
first half of next year, a situation that is likely to result in an oversupply
unless further cuts are made.

Prince Abdulaziz bin Salman, who will also be attending his first
OPEC meeting as the kingdom’s energy minister is expected to apply his tough
negotiation skills to possibly strike a deal that will see Saudi Arabia’s most
precious asset, oil, trade at high prices, especially during this period of
Aramco’s IPO, a source told CNBC.

Prince Abdulaziz and other officials are calling on the body to institute
stricter compliance measures to the cuts since countries like Nigeria and Iraq have
been overproducing.

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