If Saudi Arabia wants OPEC and its allies to agree to lower oil output, it will likely have to do “a lot of the heavy-lifting,” one oil watcher has told CNBC.
OPEC is weighing possible production cuts at its meeting in Vienna on Thursday and Friday. Prices have struggled following the global outbreak of the new coronavirus, which caused demand for crude to fall.
OPEC’s top producer Saudi Arabia is pushing for a big cut, but non-OPEC leader Russia doesn’t appear to be supporting this effort.
Even within OPEC, without its allies, Saudi Arabia may not be able to get what it wants, according to Herman Wang, S&P Global Platts’ Middle East and OPEC managing editor.
“There’s no guarantee that they’re going to be able to get a deal,” he told CNBC’s “Capital Connection” Thursday.
“There are some members that are yet to be convinced,” he said. “Likely, if Saudi Arabia wants a deal, they’re going to have to do a lot of the heavy-lifting themselves.”
Victor Shum of IHS Markit did not rule out the possibility of Saudi Arabia giving up on the cuts.
“They need Russian participation, and if Russia doesn’t join, they may say ‘well, let prices take the burden to adjust’,” he said.
“This is a make or break moment indeed,” he told “Capital Connection.”
Brent crude traded at around $51.22 in Asia’s evening hours, up 0.18%, while U.S. crude futures were trading at $46.89, 0.24% higher. Both are around 20% down from the beginning of 2020.
Shum, the vice president of energy consulting at IHS Markit, said this situation is similar to what happened in 2014, when Moscow rejected Riyadh’s requests to cut jointly. Prices fell sharply when Saudi Arabia decided to keep production stable.
This time, he said he expects Russia to agree to the cuts “eventually, at the last moment,” though the Saudis will need to take on the burden of cutting the most.
“If they decide to cut 1 million or a bit more than that, there will be a little positive move in pricing,” he said. “I don’t think it’s going to cause a significant change.”
That sentiment was echoed by John Driscoll, director of JTD Energy Services, who said such a move would “maintain prices at a floor of $50.”
“I would characterize what OPEC is doing now as a short-term, preventive action,” he told CNBC’s “Street Signs Asia” on Thursday.
“If they don’t do anything, that will be disastrous.”