When Opec representatives meet later this month, it is unlikely that Iran and Iraq, which have the most upside production potential, will agree to freeze at current levels, especially after Saudi Arabia has raised output to record volumes.
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The potential deal to freeze oil supply received unexpected support from Russian Federation and Saudi Arabia in the beginning of the week.
First, investors should not keep high hopes on any output freeze possibility.
Iran has been the main factor preventing an output deal between OPEC and non-OPEC Russia as Tehran argued it should be excluded from any such agreement before its production recovers from Western sanctions that ended in January. The country has boosted output quickly since the easing of sanctions in January, though additional increases may be a challenge without global investment and technology.
“Even if there were no output deal at the informal talks, oil may not fall and could stay around $45 (a barrel) as shale oil production is not growing”, said Tetsu Emori, president of Emori Capital Management in Tokyo.
What Does OPEC Actually Want? Rotman also added that, “We believe the overall directional trend is still downward pointing, so we would not be surprised to see WTI crude oil test its recent low area at $43”. That was a third day of gains in a row for the USA futures. At one point this year, the oil price was flirting with the $20 per barrel mark.
Given how well the oil price responds to any rumor or murmur of a looming agreement, why not go ahead and have another meeting? Tariq Zahir, spreads trader at Tyche Capital in NY, said the “drawdown may be viewed as a one-off situation”. Renewed talks on an output pact are under way. Rather, it has suggested that it should be exempt from production caps until it reaches its pre-sanction levels of production. That level is “slightly” above 4 million barrels a day, which may be achieved by the end of 2016 or early next year, he said. So if Iran is allowed exemption it’s likely they will break off from the deal as well. On a more positive note, the National Iranian Oil Company said it expects the oil market to rebalance in the fourth quarter 2016 or in early 2017. The number of rigs drilling for oil in the USA has climbed in nine of the past 10 weeks, according to oil-field services company Baker Hughes Inc.
The slight increase is said to be associated with the forthcoming report on the us oil inventories.
US crude inventories likely grew by about 200,000 barrels last week after rising for two straight weeks, a Reuters poll showed on Tuesday.
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“Most oil market analysts are very skeptical about the chances of an agreement”, said Mike Wittner, head of oil-market research at Societe Generale SA in NY.
