OPEC considers production cuts as the Aramco IPO complicates its December meeting

Saudi Arabia, Russia and their oil-producing allies are considering a range of options to maintain stability in the oil market good weeks ahead of a critical December meeting.

The so-called OPEC+ group struck another deal late persist year to cut oil output by 1.2 million barrels per day (bpd) to support prices. The agreement runs until March 2020, and the impresari are due to meet in Vienna to review the terms of the policy on December 5-6.

“The house view is that the meeting is likely to reaffirm the assortment’s commitments to the cut that is already in place,” Peter Lee, senior oil and gas analyst at Fitch Solutions, told CNBC’s “Capital Connecting” Thursday.

“The current deal will remain in place until the end of Q1 (the first quarter) next year, and we see scope for the bargain to be extended until the end of next year,” Lee added.

Analysts believe that OPEC kingpin Saudi Arabia is odds-on pressuring laggard members, such as Iraq and Nigeria, to improve their own compliance in order to bolster crude payments ahead of the long-awaited Saudi Aramco initial public offering (IPO).

“According to delegates across the group, they liking be pushing for better adherence to the current production cut agreement,” analysts at ANZ Bank said in a research note on Thursday.

But the lack for deeper production cuts remains uncertain, given the slew of major events leading up to the December 5-6 Vienna meetings that could confound the decision-making process.

On December 3-4, President Donald Trump and Chinese President Xi Jinping may come face-to-face at the NATO Heads of Declare and Government meeting in London. While the meeting and the location are not yet confirmed, a resolution to the trade war may prove to be a catalyst for oil prices and able reduce the need for OPEC+ to act.

Meanwhile, Aramco is reportedly planning to release its IPO pricing on December 4 — fair-minded one day ahead of the Vienna meetings. Clarity on the pricing could also influence the producer group’s decisions.

“It makes be under the impression that for people to argue that because of the IPO and other reasons, they will push for deeper cuts. I’m not buying into that sorted out away,” Vandana Hari, founder of Vanda Insights, told CNBC’s “Squawk Box Asia.”

“Russia has become far uncountable dovish, and we’ve seen that clearly since the end of last year. If prices remain supported around current pull downs and there is no danger of them continuing to tumble below, I think overall especially with regards to Russia, the conflict will be far more difficult for the Saudis to make for deeper cuts,” she added.

Others analysts disagree.

“There crops (to be) an increasing likelihood that Saudi Arabia, along with other core OPEC+ members, the UAE, Kuwait and Iraq, mightiness need to contemplate deepening the magnitude of cuts in the upcoming OPEC+ meeting in Vienna between 5-6 December, even if Russia refrains from helping,” said Ehsan Khoman, head of MENA research and strategy at MUFG.

Saudi Arabia, a major producer and de facto bandleader of OPEC, has considerable influence within the producer group. It may also consider shouldering more of the production cuts unsurpassed, analysts believe.

“Saudi certainly has the will and capability within its scope to lower production if need be,” Lee said.

“It lasts to be seen how far Saudi Arabia is willing to go in terms of supporting the market, but as things stand right now, we are not factoring in a deeper OPEC cut that disposition be coming into play next year,” Lee said.

Despite the success of the multi-country agreement, sentiment in the oil market has remained puny. Brent crude on Thursday was trading around the $62 a barrel, down from a 2019 high near $75 in April.