DUBAI/LONDON (Reuters) - Top OPEC oil exporter Saudi Arabia has told the producer group it will not attend talks on Monday with non-OPEC producers to discuss limiting supply, OPEC sources said, as it wants to focus on having consensus within the organization first.

OPEC logo is pictured ahead of an informal meeting between members of the Organization of the Petroleum Exporting Countries (OPEC) in Algiers, Algeria September 28, 2016. REUTERS/Ramzi Boudina/File Photo

The Nov. 28 meeting in Vienna was planned to discuss the contribution that producers outside OPEC will make to a proposed supply-limiting agreement. OPEC oil ministers meet on Wednesday in an effort to finalize their deal.

“There is an official letter from (Saudi Arabia) saying (it is) not attending the meeting because the ministers should agree to the cut and then present the agreement to non-OPEC countries,” an OPEC source said. “This will be more effective‎.”

The Organization of the Petroleum Exporting Countries is trying to cement a preliminary September agreement in Algeria that would reduce its production to between 32.5 million and 33 million barrels per day, its first supply curb since 2008.

OPEC aims to remove a supply glut and prop up oil prices, which at below $48 a barrel are less than half their level of mid-2014. Oil prices extended an earlier decline on Friday after news of the Saudi no-show.

The organization also wants non-OPEC producers such as Russia to curb output. Russian Energy Minister Alexander Novak on Thursday said OPEC had proposed that non-OPEC cut oil production by 500,000 bpd.

Monday’s talks will be converted into another OPEC-only meeting, OPEC sources said, to try to resolve the group’s internal differences before the ministerial gathering on Wednesday.

A similar OPEC and non-OPEC meeting in October resulted in no specific pledges from outside producers to cut output, with attendees citing the lack of an internal OPEC agreement.

Saudi Arabia had asked that this earlier meeting be called off, but was convinced by other members to attend in order not to embarrass the group, a source said.

NO CONSENSUS YET

Despite extensive diplomacy, the OPEC side of the deal still faces setbacks from Iraq’s call for it to be exempt and from Iran, which wants to increase supply because its output has been hit by sanctions.

A meeting of OPEC experts this week made some progress in how to implement the cut, but Iran and Iraq raised conditions for participating, according to sources.

“We have to solve our problems as OPEC first. We have not achieved an agreement within OPEC,” a Gulf source familiar with Saudi oil thinking said on Friday.

“Before we meet with non-OPEC and ask them to participate in any action, we have to have an‎ agreement that is credible with clear numbers and a system that the market believes.”

OPEC last persuaded non-OPEC nations to make joint cuts at the start of the millennium. Nonetheless, OPEC believes rival producers need to help in the current effort.

Its Economic Commission Board, comprised of the national representatives of the 14 member countries who report to their respective oil ministers, concluded a two-day meeting at the group’s Vienna headquarters on Thursday.

The OPEC flag and the OPEC logo are seen before a news conference in Vienna, Austria, October 24, 2016. REUTERS/Leonhard Foeger/File Photo

“We concluded that non-OPEC should participate in the cut as OPEC alone can’t get balance back to the market,” said a source familiar with the matter, who declined to be identified as the talks were private.

Ahead of next Wednesday’s OPEC meeting, ministers are still trying to find agreement. Algerian Energy Minister Nouredine Bouterfa said he would visit Tehran on Saturday and meet his Iraqi counterpart in Vienna on Monday for more talks.

“We have held lengthy discussions with our counterparts about practical questions and we remain optimistic that the Vienna meeting will consolidate the historic agreement obtained in Algiers,” Bouterfa told state news agency APS, referring to the talks in September that yielded a preliminary deal.</s>Oil prices fell sharply Friday after Saudi Arabia pulled out of a scheduled meeting with Russia and other oil producers outside the Organization of Petroleum Exporting Countries. OPEC and non-OPEC members were scheduled to meet Monday to discuss production cuts ahead of the 14-nation oil cartel’s Nov. 30 meeting.

At 2:55 a.m. EST Saturday, Brent crude oil, the global benchmark, was trading at $47.12 a barrel, lower by almost 4 percent, but dipped below the $47 mark several times in the preceding hour. WTI Crude, the U.S. benchmark, was trading at a loss of over 4 percent at $45.96 a barrel.

In the meeting between OPEC and non-OPEC producers, Russia, which along with Saudi Arabia is one of the world’s two largest producers, was expected to offer to freeze production at current levels instead of reducing it. Saudi Arabia pulled out of the talks due to disagreements over sharing supply cuts, and the Monday talks collapsed before they even started.

An OPEC official said Friday that Saudi Arabia wanted the cartel members to clear up their own differences before they sat down at the table with non-OPEC members, the Wall Street Journal reported.

Crude oil prices had recovered during the past week after Iran, an OPEC member reluctant to agree to production cuts, signaled its willingness to fall in line with the cartel’s plans.

“It is highly probable that oil and energy ministers of the member countries of Organization of Petroleum Exporting Countries will reach an agreement in the Nov. 30 meeting,” Iranian Oil Minister Bijan Zangeneh said Nov. 19 after meeting with OPEC’s secretary general in Tehran.

Iran and Iraq had disagreed with production cuts at OPEC’s previous meeting in Vienna a month ago, sending crude prices tumbling. The change of stance by Iran, which has been ramping up its production since the lifting of international sanctions earlier this year, was expected to boost the chances of a production cut being agreed to during the upcoming meeting Wednesday.

“The charade is coming to an end. They had to cancel the Monday meeting to avoid the embarrassment of it ending in failure. The market richly rewarded OPEC for rhetoric and now is poised to punish it harshly if they fail to come to an agreement,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, told Bloomberg.
• Oil Prices Fall Again As OPEC Can’t Agree On Production Cuts</s>As the Organisation of Petroleum Exporting Countries, OPEC holds the 171st Ordinary meeting in its Vienna, Austria headquarters on 30th November 2016;it may be producers’ reprieve from the lingering production freeze discourses. The battle for production cap and market share has been fierce in the last thirty months triggered by the U.S. shale oil technology. Saudi Arabia’s response in a price war led to crude oil glut and price collapse in July 2014.

The tussles led to fissures within and among oil blocs including, world leading conventional oil producer, Saudi Arabia and shale leading producer, the United States on the one hand; disagreements between Gulf neighbours Saudi Arabia and Iran; and geopolitical rivalry between Russia and Saudi Arabia. It had indeed been a flurry of who controls production and market share that resulted in the present global instability. The wrangles have gone beyond oil production cut or freeze to political and military rivalry, in the proxy wars in Syria and Yemen by United States, Russia, Saudi Arabia and Iran.

The first salvo in the multi-faceted crises was fired by the American drillers whose shale outpaced global oil supply from January 2011 to June 2014 to make America the number one oil producer. Between June 2014 and September 2015, Middle East producers’ in retaliatory moves, increased production and market share to dwarf the Americans dream of becoming a price giver. The price war had kept the American deployed shale rigs vulnerable with total drilling rigs reduced and operating in abysmally low gears.

It cannot be understood the tick-tack-toe game that kept the United States and Saudi Arabia as allies in crude oil supply. Again the Americans have been fingered in the frosty relations between Saudi Arabia and Russia which some accused the United States for stoking the fire to grind down the Russian economy that relies greatly on petroleum. The situation resonated in producers within and outside OPEC being at daggers drawn for the soul of petroleum that the centre no longer holds.

The 2014 summer oil price slump by over 60 percent kept the 56-year old cartel and the petroleum world in quandary. Internecine feud had been within OPEC between high cost producers whose economies are devastated by low crude oil price and prosperous producers some of who had oil deals with perceived foes. It is predicted that if gladiators in the petrodollar business fail to strike a deal especially in next week’s OPEC meeting, threats for possible OPEC Exit, otherwise known as ‘Opexit’ loom.

Various attempts have been made by OPEC members to bring sanity in the roller coaster petroleum business. Bringing volatiles under control have been met with utter chaos; two major producers Saudi Arabia and Iran standing on market shares control in the 168th December 2015 Vienna meet was a deadlock. The Saudi’s conditionality was that unless co-leading producer and oil convenient soul mate, Russia was in the production cut deal OPEC should count them out. Their action drove crude price to a 13-year low of $27 per barrel in January 2016.

Again there was another disagreement between Saudi Arabia and Iran when 18 OPEC and non-OPEC producers,that contribute three quarters of total world production gathered in the Qatari capital of Doha on April 17 2016 to stabilize output. The Saudis insisted on a deal only if Iran was involved in the talks. Iran was absent but had a solemn undertaking on market stability only when she achieves pre-nuclear sanctions of over 3 million barrels per day level of crude oil production.

OPEC’s Vienna meeting of June 2, 2016 achieved little, with the possibility of solution dangled again before Algeria where similar hassle was puzzled out in the city of Oran in 2008. The Algiers September 2016 15th International Energy Forum, IEF Ministerial meeting ending with OPEC’s sideline extra ordinary meeting was the nearest to reality in the pursuit for oil price stability.

Since then high level diplomatic moves have taken place with Gulf Cooperation Council, GCC members, Iranian, Russian and Americans urged to embrace talks on oil freeze or cut. OPEC Secretary-General, Nigeria’s Mohammed Barkindo in shuttles from Algiers through Doha in the Gas Exporters Cooperation Forum, GECF last week to Vienna next week to shore up support for the Algiers agreement;. Although some observers felt Barkindo’s moves have not achieved much, it is a matter of conjecture judging from the fact that members that never believed a freeze was impossible a year ago are now opting for compliance agreements.

In October a technical committee chaired by Algeria was set up on details of the Algiers agreement. Latin American founding member, Venezuela through its vocal oil freeze defender, President Nicolas Maduro after a meeting with Barkindo, allegedly issued a threat that OPEC was ready to enforce members’ compliance agreements reached, but what is not clear is how recalcitrant members would be whipped in.

The Algiers agreement may have put Nigeria, Iran and Libya in the exempted club list not because of price crash but for loss of market share. Nigeria has been battling militancy in its Niger Delta region while Iran is trying to regain pre-nuclear sanctions market share while Libya is battling rebellion. Iraq which is one of the declining states has also requested to be in the exemption list since it is fighting the Islamic State, IS.

But de facto OPEC leader Saudi Arabia has it turned down threatening to opt out of production cut if granted. Saudi Arabia may not be contemplating to bear the brunt of total production cuts given the weight exerted by low oil prices on its economy. Saudi Arabia recently announced a cut in projects worth US$266 billion.

The Saudi’s expect Iraq to cut production like other OPEC producers and sharing cuts equitably. Experts believe OPEC producers deserve to be on the same page to achieve the oil freeze agreement. If members abide by firm quotas and a tight control mechanism a 1million barrels per day swing the price of crude in the WTI would rally in the high fifties well above break-even points for most members, otherwise crude price would drop below the forties.Predictions are that producers in OPEC led by Saudi Arabia may opt for a 1million cut which production cost may be profitable below US$60. The U.S. shale producers require at least US$60 production cost to be in business.

OPEC countries devastated fiscally with low crude oil prices including Venezuela, Nigeria, Angola, Algeria and Ecuador have been descending through clefts in the cliffs. There is a consensus in the global petroleum circle that it was time for production cuts to raise the price of barrel above the US$50 mark. Observers believe that this may be the last chance for OPEC to stamp its authority as its relevance hangs in the balance.</s>OPEC may ask oil producers outside the cartel to make big cuts in output, Azerbaijan said on Thursday, highlighting the challenges in striking a deal as talks aimed at cutting production to stabilize prices enter the final stages.

The Minister of Industry and Energy of Azerbaijan, which is not a member of OPEC, was quoted in a newspaper as saying the cartel may want non-OPEC producers to cut output as much as 880,000 barrels a day – a figure analysts said could help wipe out excess supplies and start to eat into record inventories.

However, the Energy Minister of Russia, the largest non-OPEC producer, said he hadn’t heard about such a proposal, and that OPEC’s earlier suggestion had been for members outside the cartel to reduce output by 500,000 b/d.

A source for the Organization of Petroleum Exporting Countries told Reuters the group had yet to decide on the final figures to be discussed on Nov. 28, when OPEC and non-OPEC experts meet in Vienna. Oil prices were little changed on Thursday amid uncertainty over prospects for a deal to reduce output.

“It could be expected that OPEC members may ask non-OPEC countries to cut production volumes for the next six months starting from Jan. 1 2017 … by 880,000 barrels from the total daily production,” Azeri newspaper Respublika quoted the country’s Energy Minister, Natig Aliyev, as saying.

OPEC itself is expected to discuss production cuts of 4 per cent to 4.5 per cent at its ministerial meeting on Nov. 30, but members Iran and Iraq still have reservations about how much they want to contribute.

Such a cut would bring OPEC’s current output down by more than 1.2 million b/d, according to Reuters calculations based on the group’s October production, and is toward the upper end of market expectations.

OPEC has long insisted it wants non-OPEC producers to properly participate in global output cuts to support prices, citing tensions at the start of the millennium when Russia promised to join cuts but raised output instead.

Russia has said it wants to help rebalance the market but prefers to freeze its output, which is around a post-Soviet high of more than 11 million b/d, rather than cut it.

Russian Energy Minister Alexander Novak said on Thursday Moscow was working with Kazakhstan and Mexico, although not the United States, on joint output curbs, but reiterated it preferred to freeze output over cuts.

“According to our plans, [Russia’s] oil output is going up next year. If we keep production at the current level we are making our contribution; for us that essentially means a cut of 200,000-300,000 barrels per day [in 2017]”, he said.

That could seem as a rather small contribution to OPEC members, especially its leader, Saudi Arabia, and its Gulf allies, which have been insisting on full participation by Russia.

A senior OPEC delegate said earlier this week full participation by Moscow would be required: “Statements from Moscow indicating they are not willing to participate in a cut but just to freeze – this will make it difficult for OPEC to rebalance the market alone and bring prices up.”

A cut of 880,000 b/d would represent less than 2 per cent of current total non-OPEC output.

But given that few non-OPEC producers are expected to participate in the cuts, the burden could be heavy on those that do so – potentially Russia, Kazakhstan, Azerbaijan and Mexico, all of which rely heavily on oil revenue.

Should OPEC and non-OPEC members reach a deal to cut one million b/d and 880,000 b/d in production, respectively, it would immediately help the market turn into a supply deficit and help erode record stocks amounting to more than billion barrels.

Mr. Novak said on Thursday global oversupply had shrank to one million b/d from as much as 1.8 million at the start of the year.</s>Two years after Saudi Arabia and its Gulf allies rejected OPEC’s attempt to intervene in oil markets to counter collapsing prices, Riyadh is rallying support for collective action. On Sept. 28, OPEC members tentatively agreed to cut production to between 32.5 million and 33.0 million barrels per day. However, output has continued to rise, meaning even deeper cuts will be required than before to reach that mark. The moment of truth will come Nov. 30 at OPEC’s semiannual summit in Vienna, where member states will seek to finalize a deal on production cuts.

Though Saudi Arabia has worked hard to convince other member states to support an agreement, the bloc remains divided over how much output to cut as a whole — and how much of the burden should be carried by each member. They are questions under debate this week, so as to finalize an agreement before the main event next week.

Iran and Iraq have emerged as the biggest obstacles to lowering output. Neither country is against the idea of an OPEC-wide deal in theory, but neither appears willing to sacrifice much of its own production in pursuit of one. As OPEC’s second- and third-largest producers, respectively, Iran and Iraq’s voices can hardly be ignored.

 Saudi Arabia’s desire for a deal suggests that the bloc may concede to Iran and Iraq’s demands. But the divisions within OPEC likely mean that any deal will be modest at most and will only lower the bloc’s production to the levels seen just a few months ago. Oil prices will change little in response. Nevertheless, a deal does seem to be in the cards, even though it will likely cover only six months.

According to its latest monthly report, OPEC produced an estimated 33.64 million bpd in October — some 410,000 bpd more than in August — despite 160,000 to 200,000 bpd of Angolan production being taken offline for temporary maintenance issues. (Numbers based on secondary sources.) As a result, the cut needed to comply with the production limits agreed to in September has nearly doubled over the span of two months. Moreover, almost all of the output increase came from just two producers — Nigeria and Libya — that will be exempt from any final deal, meaning the burden of production cuts would fall entirely to OPEC’s other member states.

This widening chasm has predictably strained the negotiations within OPEC on how to implement the September agreement. Among other challenges of bringing any deal to fruition is the opacity of data on production. For example, Iran and Iraq disagree with Saudi Arabia on which sets of data should be used in formulating a deal. OPEC reports cite both primary production figures — data reported by countries — and secondary oil figures, or data compiled by six external groups. Given the propensity of OPEC members to report inaccurate output data, Saudi Arabia has insisted on using only secondary data. But Iran and Iraq argue that such metrics underreport their actual output. In October, OPEC members reported nearly 1 million bpd of production more than what secondary sources reported. Iran and Iraq fear that if only secondary sources are considered, any freeze would be tantamount to a cut and any cut made will be deeper.

Iran and Iraq both argue that they should be exempt from any cuts or freezes, but neither Baghdad nor Tehran is seeking to shutter an OPEC deal altogether. On Nov. 20, Iraqi Oil Minister Jabbar al-Luaibi said his country would bring three different proposals to the talks in Vienna. And considering its ongoing financial woes,

 Baghdad needs oil prices to rise as much as any other major producer in the group. In July, Iraq finalized an agreement with the International Monetary Fund for a $5.4 billion loan package split into 13 tranches over three years (the first was received that month), and the government is expected to post a 14.1 percent fiscal deficit this year.

But Iraq argues that it should receive the same exemptions that Iran, Nigeria and Libya have already secured because it needs additional revenue to support its operations against the Islamic State. Baghdad says that, at most, it is willing to freeze its output at around 4.7 million bpd, but the significance of this pledge depends on which set of data one believes: This level of production is about 140,000 bpd higher than what secondary sources report, but 75,000 bpd lower than what Iraq itself claims it produces. The Iraqi government has spent the past two months trying to convince secondary sources of the accuracy of its reported figures, releasing field-by-field production data to support its claims, but the Kurdistan Regional Government disputes the data on oil produced in the autonomous region.

Iran, meanwhile, is focused on reaping the economic benefits of its 2015 nuclear deal with Western powers amid a season of heightened political sensitivities. Though any final deal would exempt Iran from cutting production, other OPEC members are still pushing the country to cap output at 3.92 million bpd — the level Tehran reported to OPEC in October. Tehran has long argued that it should be allowed to continue increasing output, since its oil industry is still recovering from the Western sanctions.

Saudi goals

 

 Nonetheless, it has become clear over the past few months that Saudi Arabia and its Gulf allies deeply desire some sort of deal — and the size of that deal may not be important. As it does every year, Saudi Arabia boosted production over the summer to meet higher seasonal demand, but it has yet to decrease output: Saudi production today remains around 400,000 bpd higher than during the first three months of 2016. Riyadh is hoping to use the surplus as a negotiating carrot to get other producers to shoulder a larger share of any agreement. At this point, Saudi Arabia and its Gulf allies could probably reduce production by more than 500,000 bpd without reducing their exports. If the OPEC deal falls through, Riyadh can then either dump its excess oil on the export market, stockpile it, or draw down its production anyway.

Riyadh is not currently focused on substantially increasing its market share. Rather, its main goal is to support an oil market recovery as much as possible ahead of an initial public offering of Saudi Arabian Oil Co. planned for 2018. While an OPEC deal may boost prices past $55 per barrel — the level where shale oil production becomes much more profitable — a lack of a deal would further suppress prices, especially if Saudi Arabia adds to the global supply glut, further hindering the market’s recovery.

Saudi Arabia appears to be throwing its weight into securing an OPEC deal. Riyadh — like all OPEC producers — is under no illusion that a substantial market recovery is in the offing, even if a bargain is struck in Vienna.

Even so, the Saudis hope that a deal would limit the chances of another collapse in prices over the next 18 months and would establish a price floor based on current output levels. Such modest goals may be enough to persuade Saudi Arabia to overlook its squabbles with Iran and Iraq to secure a long-elusive OPEC deal.</s>The meeting was planned to discuss the contribution that producers outside OPEC will make to a proposed supply-limiting agreement. OPEC oil ministers meet on Wednesday in an effort to finalize their deal.

"There is an official letter from (Saudi Arabia) saying (it is) not attending the meeting because the ministers should agree to the cut and then present the agreement to non-OPEC countries," an OPEC source said. "This will be more effective‎."

The Organization of the Petroleum Exporting Countries is trying to cement a preliminary September agreement in Algeria that would reduce its production to between 32.5 million and 33 million barrels per day, its first supply curb since 2008.

OPEC aims to remove a supply glut and prop up oil prices, which at below $48 a barrel are less than half their level of mid-2014. Oil prices extended an earlier decline on Friday after news of the Saudi no-show.

The organization also wants non-OPEC producers such as Russia to curb output. Russian Energy Minister Alexander Novak on Thursday said OPEC had proposed that non-OPEC cut oil production by 500,000 bpd.

The Monday talks were still scheduled to go ahead and a Russian source familiar with the matter said Russia planned to attend.

A similar OPEC and non-OPEC meeting in October resulted in no specific pledges from outside producers to cut output, with attendees citing the lack of an internal OPEC agreement.

Saudi Arabia had asked that this earlier meeting be called off, but was convinced by other members to attend in order not to embarrass the group, a source said.

Despite extensive diplomacy, the OPEC side of the deal still faces setbacks from Iraq's call for it to be exempt and from Iran, which wants to increase supply because its output has been hit by sanctions.

A meeting of OPEC experts this week made some progress in how to implement the cut, but Iran and Iraq raised conditions for participating, according to sources.

"We have to solve our problems as OPEC first. We have not achieved an agreement within OPEC," a Gulf source familiar with Saudi oil thinking said on Friday.

"Before we meet with non-OPEC and ask them to participate in any action, we have to have an‎ agreement that is credible with clear numbers and a system that the market believes."

OPEC last persuaded non-OPEC nations to make joint cuts at the start of the millennium. Nonetheless, OPEC believes rival producers need to help in the current effort.

Its Economic Commission Board, comprised of the national representatives of the 14 member countries who report to their respective oil ministers, concluded a two-day meeting at the group's Vienna headquarters on Thursday.

"We concluded that non-OPEC should participate in the cut as OPEC alone can't get balance back to the market," said a source familiar with the matter, who declined to be identified as the talks were private.

Ahead of next Wednesday's OPEC meeting, ministers are still trying to find agreement. Algerian Energy Minister Nouredine Bouterfa said he would visit Tehran on Saturday and meet his Iraqi counterpart in Vienna on Monday for more talks.

"We have held lengthy discussions with our counterparts about practical questions and we remain optimistic that the Vienna meeting will consolidate the historic agreement obtained in Algiers," Bouterfa told state news agency APS, referring to the talks in September that yielded a preliminary deal.</s>BOSTON - Oil prices fell more than 2 percent on Friday, dragged down by uncertainty over whether the Organization of the Petroleum Exporting Countries will reach an output deal, after Saudi Arabia said it will not attend talks on Monday with non-OPEC producers to discuss supply cuts.

Brent crude futures were trading at $47.79 a barrel at 10:51 a.m. Eastern, down $1.21. U.S. crude futures was at $46.84 a barrel, down $1.12.

Overall activity on both contracts was thin after the U.S. Thanksgiving holiday and ahead of the weekend.

Top OPEC oil exporter Saudi Arabia has told the producer group it will not attend talks on Monday with non-OPEC producers to discuss limiting supply, OPEC sources said, as it wants to focus on having consensus within the organization first.

"I think Saudi's announcement it would not to go to the meeting drove the initial sell-off," said Tariq Zahir, managing member at Tyche Capital in New York. "There has to be a substantial cut and it has to be something that the street will believe."

Russia still plans to attend lower-tier talks on Nov. 28 in Vienna ahead of the OPEC ministerial meeting on Nov. 30, a Russian source familiar with the matter told Reuters.

Reports that state oil giant Saudi Aramco would in January increase oil supplies to some Asian customers also cast a shadow on markets, traders said.

A decline in China's October crude oil imports to their lowest on a daily basis since January added to the bearish tone.

But analysts said fundamentals were little changed - apart from concerns over the fate of next week's deal.

Bjarne Schieldrop, chief commodities analyst with SEB Bank in Oslo said prices could rebound if the Nov. 30 meeting succeeded in reaching a targeted production cap of 32.5 million to 33.0 million barrels per day (bpd), from the 33.64 million bpd the group pumped in October.
Saudi Arabia tells its partners in the Organization of Petroleum Exporting Countries that it will not attend a planned November 28 meeting in Vienna, out of unhappiness about intransigence from Iraq and Iran with regard to production cuts.