Officials from the Organization of the Petroleum Exporting Countries, Russia and others, a group known as OPEC+, held an initial round of talks on Sunday before formal discussions began but failed to reach agreement on policy for 2021.
OPEC+ had been due to ease existing production cuts by 2 million barrels per day (bpd) from January 2021, but a second coronavirus wave has reduced demand for fuel around the world, prompting a rethink among members of the group.
OPEC+ is now considering extending the existing cuts of 7.7 million bpd, about 8% of global demand, into the first months of 2021, a position supported by OPEC’s de-facto leader Saudi Arabia and other major producers in the group, sources said.
Preliminary consultations on Sunday between Saudi, Russian and other key ministers did not agree on strategy.
Sources have said talks were now focusing on extending cuts by three to four months or increasing output gradually from January, the position supported by Russia.
Kremlin spokesman Dmitry Peskov said differences between Russia and OPEC were not as severe as in early 2020, when disagreements led to a collapse in talks and a surge in output.
But Peskov said President Vladimir Putin had no plans to call Saudi Arabia’s leadership before the OPEC+ meeting, a move that in the past has helped smooth over any dispute.
OPEC+ data shows a three-month extension of existing cuts would still leave oil inventories in the industrial world in 2021 above their five-year average, a key benchmark monitored by OPEC+, although the overhang would be reduced.
With a three-month extension, the overhang is expected to reach 129 million barrels in the first quarter, before dropping to 32 million and 7 million barrels in the next two quarters, and then rising to 73 million barrels in the fourth quarter.
Kazakhstan, a member of OPEC+, has opposed extending existing cuts into next year and has called for increasing output in line with the current pact, one source said.
“Today’s meeting will be difficult, especially if Russia and Kazakhstan didn’t change their position,” the OPEC+ source said.
The meeting of OPEC, which precedes a gathering of the wider OPEC+ alliance, was expected to start at 1300 GMT on Monday.
Oil prices, which were down 2% at $47 a barrel by 0955 GMT, could fall as much as 10% if OPEC failed to roll over cuts, Deutsche Bank said in a note.
Oil had a bull run last week triggered by hopes for a virus vaccine and expectations of a cut rollover.