OPEC’s Output Freeze: What Has Changed Since Doha?

Brent briefly spiked above $50 in the previous session after Reuters reported Iran was sending positive signals that the country may support joint OPEC action to prop up oil prices. In London, Brent North Sea crude for October rose 80 cents to $49.96 a barrel.

October West Texas Intermediate crude tacked on 69 cents, or 1.5%, to settle at $48.10 a barrel on the New York Mercantile Exchange after tapping lows under $47. Similarly, Zero Hedge’s sources expected an 850,000 barrel draw this week, while analysts polled by S&P Global Plattsexpected a 200,000-barrel rise in USA crude inventories.

The bank said a proposal by members of the Organization of the Petroleum Exporting Countries (OPEC) and other producers like Russian Federation to freeze output at current levels “would leave production at record highs” and therefore do little to bring supply and demand back into balance.

But analysts and traders remain sceptical that producers will come to an agreement at a meeting in Algeria scheduled for September 26-28 as various OPEC members have their own agendas.

Oil rose, reversing an earlier decline, on speculation Iran may be more willing to cooperate with other producers seeking to freeze output. Iran’s oil ministry said the country hasn’t yet decided whether to join informal OPEC talks next month in Algiers following a Reuters report that the nation had confirmed its attendance at the gathering. Despite rebounding this year, oil still trades at less than half of mid-2014 levels of above $100.

Unfortunately for oil prices, Iran had made it clear that it would not join any such discussion until they reached pre-sanction levels of oil production.

An attempt to jointly freeze production levels earlier this year failed after Saudi Arabia backed out over Iran’s refusal to take part of the initiative, underscoring the difficulty for political rivals to forge consensus.

Venezuela, whose economy has been hit hard by the oil price collapse, has for months sought to rally producers towards an agreement to limit production.

July numbers show Iran is getting close to its goal, as production reached 3.6 million barrels per day.

The Iraqi call comes on top of worries about burgeoning Chinese fuel exports, more Iraqi and Nigerian crude shipments and a rising USA oil rig count.

An oil field owned by Bashneft in Russian Federation.

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Adding to the supply worry is the continuing deluge of products from China.