OPEC's oil freeze meeting unlikely to deliver real results

Carla Harmon
April 17, 2016

Any agreement to freeze oil production would "likely give prices a further short-term boost", said Fawad Razaqzada, the analyst at brokerage firm City Index.

He said production could rise to 12.5 million barrels per day from 10.2 mbpd in six to nine months "if we wanted to". The countries could decide to freeze production at current levels, though many remain skeptical that Iran, which only recently had sanctions lifted, will agree to a deal. Saudi Arabia was producing at a long-term high level in January and has no real incentive to increase production much except of a short-term market share advantage as low oil prices weigh heavily on the country's budget balances.

Optimism from early on last week got dented some by a report Friday that Iran's oil minister Bijan Zanganeh won't attend the producers meeting.

US shale oil drillers will also return if crude prices rise.

Failure to reach an agreement in Doha threatens to destabilize oil prices that have rebounded amid prospects for an easing in a global surplus.

While Russia's energy ministry is "optimistic" and Qatar's has a "positive feeling", Saudi Arabia's deputy crown prince, Prince Mohamed bin Salman, said in an interview with Bloomberg on Thursday that the kingdom won't restrain its oil production unless other producers, including Iran, agree to freeze output.

The market had nosedived from above $100 in mid-2014 to 13-year lows of around $27 in February, costing exporters billions of dollars in lost revenue.

Prices fell after Reuters reported that Russian oil minister Alexander Novak told a closed-door briefing that a deal on an oil output freeze scheduled to be signed this month in Doha will be loosely framed with few detailed commitments. "Iran will not be a signatory of the to-be Doha agreement, something that the oil producers have understood", Nematollahi added.

"I'd like to think it's only up from here, but we haven't seen the fundamental support for that thesis", said Thomas Jorden, chief executive of Cimarex Energy Co., one of the largest producers attending an industry conference in NY this week.

OPEC continues to pump about 1.2 million barrels a day more than the average required in the first half of the year, the report showed.

OPEC kingpin Saudi Arabia, however, has insisted it will not join an output freeze unless Iran, its regional rival, does so. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.2% at $41.42 a barrel.

While this represented the slowest quarterly growth of China since the height of the financial crisis in 2009, Beijing's policies to revive growth with tools such as lending and construction appeared to gain traction in March.

India looks like it could become the "main engine of global demand growth" in coming years as lower oil prices have helped stimulate demand.

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