UPDATE 6-OPEC reaches consensus to extend oil cuts in Q1 if allies agree

After consultations on Sunday failed to reach agreement, sources said the group was also considering increasing output gradually from January, a position Russia backs. "OPEC will probably agree to extend the current production ceiling for the first quarter of 2021, if the non-OPEC countries agree with it in (Tuesday's) meeting," an OPEC source said.

OPEC members reached a broad consensus on the need to extend existing oil production cuts for three months from January if their allies in the wider OPEC+ group also support such a move, ministers and delegates said on Monday. Algerian Energy Minister Abdelmadjid Attar, holder of the Organization of the Petroleum Exporting Countries' rotating presidency, said there was "consensus at the OPEC level."

He spoke before OPEC ministers began their talks on a policy that would help producers cope with weak demand in 2021 due to the coronavirus crisis. His Iranian counterpart, Bijan Zanganeh, made similar remarks after the meeting finished, but said Tuesday's meeting of OPEC+, which includes Russia and other allies, would not be easy.

"I think within OPEC there was consensus," Zanganeh said, the Iranian oil ministry's news agency SHANA reported. "Tomorrow's meeting will be difficult and require negotiations and patience." OPEC delegations reconvene for further talks on Tuesday, the group said in a statement. OPEC+ was scheduled to hold its meeting on Tuesday at 1300 GMT.

OPEC+ had been due to ease existing production cuts by 2 million barrels per day (bpd) from January. But, with demand still under pressure amid the coronavirus pandemic, OPEC+ has been considering extending existing cuts of 7.7 million bpd, about 8% of global demand, into the first months of 2021, a position backed by Saudi Arabia, sources said. After consultations on Sunday failed to reach agreement, sources said the group was also considering increasing output gradually from January, a position Russia backs.

"OPEC will probably agree to extend the current production ceiling for the first quarter of 2021, if the non-OPEC countries agree with it in (Tuesday's) meeting," an OPEC source said. 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 Russian 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+ has to strike a delicate balance of pushing up prices enough to help their budgets but not so much that rival U.S. output surges. U.S. shale production tends to climb as prices rise above $50 a barrel. Adding to the challenge within OPEC+, Moscow's finances can tolerate lower oil prices than Riyadh's.

Oil prices, which were down nearly 1.5% at around $47.05 a barrel by 1825 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 COVID-19 virus vaccine and expectations of a rollover in OPEC+ cuts.

(Additional reporting and writing by Alex Lawler and Bozorgmehr Sharafedin, Writing by Dmitry Zdhannikov; Editing by Edmund Blair and Marguerita Choy)

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