OPEC+ working on compromise for 2021 oil policy, sources say

Vaccine hopes spur oil price rally, demand still weak

  
The logo of the Organisation of the Petroleum Exporting Countries (OPEC) sits outside its headquarters ahead of the OPEC and NON-OPEC meeting, Austria December 6, 2019.

The logo of the Organisation of the Petroleum Exporting Countries (OPEC) sits outside its headquarters ahead of the OPEC and NON-OPEC meeting, Austria December 6, 2019.

REUTERS/Leonhard Foeger

LONDON/DUBAI/MOSCOW- OPEC and Russia have moved closer to a compromise over oil supply policy for 2021 after talks earlier this week failed to yield a decision on how to tackle weak oil demand amid a second coronavirus wave, OPEC+ sources told Reuters.

The Organization of the Petroleum Exporting Countries, Russia and allies, a group known as OPEC+, had previously been expected to extend existing oil cuts of 7.7 million barrels per day (bpd), or 8% of global supplies, until at least March.

But after hopes for a speedy approval of anti-virus vaccines spurred an oil price rally at the end of November, several producers started questioning the need to keep such a tight rein on oil policy, as advocated by OPEC leader Saudi Arabia.

OPEC+ sources have said Russia, Iraq, Nigeria and the United Arab Emirates have all to a certain extent expressed interest in supplying the market with more oil in 2021.

"Things are heading towards a compromise," one OPEC delegate said.

The start of the OPEC+ meeting on Thursday was postponed by one hour until 1400 GMT, two OPEC+ sources said.

Energy Aspects, a consultancy, wrote: "We understand that there has been tentative progress in discussions between OPEC+ members today and that ministers are inching closer to a compromise that should break the impasse."

Sources have said options now range from a rollover of existing policies to easing cuts each month by between 0.5 million to 1.0 million bpd starting from January.

Two sources told Reuters the preferred option was a roll over of existing cuts into January, and a monthly increase by 0.5 million bpd in February, March, April and May.

OPEC+ has to strike a delicate balance between pushing up oil prices enough to help their budgets but not by so much that rival U.S. output surges. U.S. shale production tends to climb above $50 a barrel. Prices are now around $48 .

Adding to the challenge within OPEC+, Moscow's finances can tolerate lower oil prices than Riyadh's.

JP Morgan estimated that additional production of 2 million bpd would cost OPEC+ $55 billion in lost revenues in 2021, as the price drop would outweigh the benefit for higher output.

(Reporting by Alex Lawler and Ahmad Ghaddar in London and Rania El Gamal in Dubai; Writing by Dmitry Zhdannikov; Editing by Edmund Blair) ((Dmitri.Zhdannikov@thomsonreuters.com;))

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