OPEC+ members began a meeting on Monday to discuss whether to extend existing oil cuts for three to four months or to increase output gradually from January, as the coronavirus crisis continues to pummel demand for fuel.
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 considering extending existing cuts of 7.7 million bpd, about 8 percent of global demand, into the first months of 2021, a position backed by OPEC's de-facto leader Saudi Arabia and other major producers, OPEC+ sources told Reuters.
After preliminary consultations on Sunday between Saudi, Russian and other key ministers failed to reach a consensus, sources said talks were focusing on extending cuts by three to four months or increasing output gradually from January.
Russia supports a gradual increase.
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 1 percent around $47 by 1325 GMT, could fall as much as 10 percent 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 rollover in OPEC+ cuts.
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.
"Today's meeting will be difficult," the OPEC+ source said.The meeting of OPEC, which precedes a gathering of the wider OPEC+ alliance, started at 1320 GMT.