Oil prices are typically volatile before OPEC talks and Friday’s session was tempered with caution despite market sentiment on a high this week after the USA government reported on Wednesday a third straight weekly drop in crude stockpiles. Prices climbed to a two-week high earlier that day after Saudi officials were said to have made a proposal to their Iranian counterparts to lower the kingdom’s production in exchange for Tehran agreeing to freeze its own output, now at 3.6 million barrels a day. The general view is that OPEC heavyweights, such as Saudi Arabia, Iran and Iraq, will not be able to forge a consensus to either slash or freeze production due to their longstanding political rivalry and emphasis to expand market share over prices.
Advertisement
ANZ bank said “discussions between Saudi Arabia and Iran this week suggest they are keen to get something done. which raises the possibility of a sharp reaction to the upside in prices if an agreement is reached”. That helped to feed a selloff in oil futures on Friday.
At the end of one of its most anticipated meetings for some time, the United States central bank’s policymakers said that while the economy continued to improve and the argument for a rise was strengthening, more evidence of sustained progress was needed.
Subsequently, there were reports from sources that Iranian officials would reject such a deal with Iran still committed to reaching pre-sanction production levels. Both Saudi Arabia and Iran are OPEC members.
“Given how this formula worked so well already this year, they have every incentive to keep making these comments-ad nauseam-until the market finally ignores them”, he said.
Together, the three nations are pumping an additional 1.19 million barrels of oil a day, putting more pressure on the Algiers oil talks to arrive at a solution.
OPEC countries are inching closer to a deal that curbs production levels, but it’s unlikely to be struck in Algiers.
Oil futures started the day in negative territory as investors held little hope of a breakthrough to prop up prices at talks held by members of OPEC in Algeria next week. A top-level Russian delegation is at the forum, and it may join OPEC for the meeting.
“The financial pain and the incentive to reach an agreement is stronger”, Fattouh said.
“The chances of success are compounded by the flexibility that will be necessary”, he said.
In a statement issued late Thursday, Minister Jabar al-Luaibi set a production ceiling of between 4.75 and 5 million barrels per day. Libya is looking to increase its oil production from 292,000 barrels a day to nearly 1 million barrels a day, while Nigeria is aiming to push its oil production beyond 2 million barrels a day.
Ecuador supports the position of ideological ally Venezuela that major oil producers should freeze production levels to limit excess supply and support prices.
That would mean the market has to first “distinguish between a decline in Saudi production at the end of the summer after an increase during the summer, and the talk about [a] freeze or production cut among OPEC members”. This time, things are a bit different (and more complicated). Freezing output was proposed in February, but a meeting in April ended with no final accord.
An agreement would ‘unravel within days or weeks since there is no reliable way to monitor cheaters and everyone has a history of cheating.’
“Without binding measures, without specific quotas”, Houssin said.
Advertisement
Previously, the Saudis have refused to discuss a production cut.
