VIENNA—Saudi Arabia cast fresh doubt on whether the world’s biggest oil suppliers can reach a deal this week to cut production and bolster prices.
Late Thursday, Saudi Energy Minister Khaled al-Falih said the group hadn’t reach a deal on the size of a proposed cut and that he was no longer confident of that occurring Friday. He said OPEC was debating a cut of about 1 million barrels a day—a reduction toward the low end of what market analysts had expected.
OPEC had agreed in its formal meeting earlier Thursday to cut production but deferred naming a number until Friday, when it was scheduled to sit down with Russia. Russia and a group of producers from outside the Organization of the Petroleum Exporting Countries have been working with the cartel for the last two years to meter out production.
The U.S. benchmark oil price fell 2.6% on Thursday to $51.49 a barrel on the New York Mercantile Exchange. Brent, a gauge of international crude prices, closed 2.4% lower at $60.06 a barrel.
The cartel is struggling to convince markets that it can stabilize oil prices. WSJ’s Sarah Kent takes a look at the current state of OPEC’s power.
The main issue under debate Thursday was whether all member-countries should cut production equally or whether Saudi Arabia and other larger producers should bear most of the burden. Libya, Iran, Nigeria and Venezuela, for instance, have argued for special exemptions from the cuts.
Iran, currently under U.S. sanctions, fought strongly against curbing its oil production, delegates said. “They don’t want also to be punished by OPEC,” a Gulf-region delegate said. “I can see where they’re coming from. It’s like having another sanction.”
The four countries seeking exemptions have yet to agree on their specific cuts even though an agreement is taking shape, according to Hossein Kazempour, Iran’s envoy to the cartel.
“There is a lot of discontent in the room,” he said.
Other members fault overproduction from the Saudis and Emiratis for the price crash and think those countries should bear the brunt of cuts, Mr. Kazempour said.
Once the oil market’s undisputed king, OPEC now faces converging oil-market pressures, geopolitical upheaval and internal strife that are undermining its traditional influence over crude prices—and putting the reputation of the almost 60-year-old cartel on the line.
Investors are now asking whether OPEC—de facto led by Saudi Arabia—still has the power to rebalance an oversupplied oil market and boost prices that have fallen by more than 30% since hitting four-year highs in October. Even signals from the Saudis and other OPEC members that they plan to curb production at least marginally have failed to rally the market as much as such statements have done in the past.
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Sources: Renaissance Capital (Russia); ERC Equipoise (Venezuela, Nigeria, Angola, Ecuador); International Monetary Fund (all others)
“We want to listen to member-country views, but most importantly we have to get non-OPEC countries on board tomorrow,” Mr. Falih said Thursday, suggesting the group could defer a specific decision on cuts until Friday, when it meets with Russia and other big producers.
The cartel’s official semiannual summit comes as the group continues to lose global market share as a result of surging U.S. shale oil production. U.S. crude output this year surpassed that of Saudi Arabia, reshaping the global oil pecking order and complicating OPEC’s ability to dictate oil price levels.
“OPEC, while not irrelevant, has a more limited or constrained role in the market,” said Richard Mallinson, co-founder of consulting firm Energy Aspects. “Two months ago, the answer would have been quite different.”
At that time, crude prices had climbed to four-year highs—with Brent hovering around $85 a barrel—and OPEC and its allies outside the cartel, including Russia, were ramping up production after more than a year of holding back output. Those initial production curbs, which took effect at the start of 2017, had helped boost prices by more than 50% and mop up excess crude inventories.
But the short-term fundamentals shifted faster than OPEC could keep up. An expected dearth of supply as a result of U.S. oil sanctions on Iran—another OPEC member—failed to materialize after the Trump administration granted temporary waivers to top buyers of Iranian crude in early November.
Meanwhile, weakening prospects for global growth have weighed on oil demand forecasts, casting further doubt over OPEC’s June decision to raise output.
Mr. Mallinson of Energy Aspects said the “biggest challenge to OPEC comes from U.S.-Saudi relations” in the wake of the murder in early October of dissident Saudi journalist Jamal Khashoggi. U.S. intelligence agencies have concluded that Saudi Crown Prince Mohammad bin Salman had ordered the killing, but Mr. Trump has dismissed those findings and vowed to remain a “steadfast partner” of Saudi Arabia.
The crown prince, known as MBS, “wants protection from the White House, so that complicates things hugely for the Saudis and the whole of OPEC going into the next meeting,” Mr. Mallinson said, because the Saudis feel pressure to appease the U.S. with low prices.
Still, OPEC and its partners are widely expected to eke out an agreement to curb output at a second day of meetings with non-OPEC members on Friday.