The Organization of Petroleum Exporting Countries (OPEC) and its allies plan to deepen oil cuts and have the deal in place so it runs at least until June 2020, two sources familiar with the talks tell Reuters News Agency, as Saudi Arabia tries to buoy the pricing for the debut share sale of state oil giant Aramco.
The deal being discussed by OPEC and other producers, known as OPEC+, would add at least 400,000 barrels per day (bpd) to existing cuts of 1.2 million bpd or 1.2 percent of global supply.
The current deal runs to March.
“They [the Saudis] want to surprise the market,” one of the sources said.
Another two sources said the latest OPEC analysis, drawn up by OPEC’s Economic Commission Board, projected a large oversupply and build-up in inventories in the first half of 2020 if no additional cuts were made.
Russia, a key non-OPEC ally, has so far opposed deeper cuts or a longer extension. Moscow has often taken a tough stance ahead of every meeting before approving the policy. Sources said Saudi Arabia was working on convincing Russia.
Riyadh needs high oil prices to balance its budget and to support the pricing for the Aramco initial public offering (IPO), which could be the world’s biggest.
The Aramco IPO is the centrepiece of Crown Prince Mohammed bin Salman’s Vision 2030 plan to diversify the kingdom’s economy away from fossil fuels. The Aramco debut share sale is almost entirely dependent on local investors after foreign investors balked at the valuation and a dividend yield that is less attractive than many oil majors.
Russia, the world’s second-biggest oil exporter after Saudi Arabia, also benefits from a higher oil price and has been working with OPEC on cuts to prevent an oil glut building as a result of booming production from the United States, which has climbed to become the world’s biggest crude producer.
Benchmark Brent oil prices rose by more than two percent to nearly $62 per barrel on Monday on the news about the possibility of deeper cuts.