By April 15, 2016 Read More →

Sunday’s OPEC meeting in Doha: Participants, goals and insights

OPEC meeting will bring together almost 60 per cent of the world’s oil production

OPEC meeting

If attending countries agree to an oil production cap at the OPEC meeting in Qatar on Sunday, some analysts say the price of oil could rise to $50 a barrel.

The OPEC meeting in Qatar on Sunday will see representatives from countries across the globe gather to discuss oil production freezes in an effort to increase the price of crude.

Countries sending representatives to the summit produce almost 60 per cent of the world’s oil supply.  Along with the four signatories to the preliminary deal, officials from Algeria, Angola, Azerbaijan, Columbia, Ecuador, Indonesia, Iran, Iraq, Kazakhstan, Kuwait, Mexico, Nigeria, Oman and the United Arab Emirates will attend.

The only OPEC country not attending the Qatar meeting will be Libya.  Also missing from the summit are the United States, Canada, China, Brazil and Norway.

Most countries in attendance have recently hinted at a production freeze, however, Iran has said it will not limit production before the country restores its output to pre-sanction levels.  Saudi Arabia has said without buy-in from Iran, it will not cap its production of crude.

The Russian energy minister says he is optimistic a deal can be reached while Qatar has a “positive feeling”.

 

Since talk of a possible deal has surfaced, the price of oil has increased and is currently trading above the $40 a barrel mark.

Bloomberg reports Bank of America believes a final accord could lock in that gain and possibly increase prices to $50 a barrel.  However, a freeze will not end the glut in oil supply as the world’s biggest crude producers, Saudi Arabia and Russia, are currently pumping at near record levels.

According to Bloomberg, Morgan Stanley says “our downbeat oil view is unchanged” by the possible production freeze.

 

If the freeze is approved, producers will limit production to around 47 million barrels of crude per day.  Currently, many of the participating countries are producing at maximum capacity with little chance to increase output.

 

11 of the OPEC members attending the summit have reduced their output by almost half a million barrels a day since January.

While the summit could impose limits on countries in attendance, the U.S. and Iran could be major factors in crude prices.  With shale production falling, the United States could make up a large share of the 700,000 barrel-a-day reduction in output from non-OPEC countries in 2016.  However, Iran is planning to increase its production by about 700,000 barrels per day this year, up from the 3.3 million in March.

Bloomberg says analysts are leery of any deal, calling it “self-defeating” because it would allow a revival of U.S. shale drilling, only postponing the supply curbs analysts say are needed to re-balance overloaded global markets.

 

 

Should a deal be reached, there is no mechanism to punish countries that do not follow the agreement and there is a history of non-OPEC countries not standing by deals made on production caps.  In 2001, OPEC struck a deal with Russia, Mexico, Oman, Angola and Norway to cut supply by 500,000 barrels per day.  By the following year, Russia had increased its production and the only countries to follow through on their agreements to cut production were Mexico and Norway.

If a deal cannot be reached, Bloomberg reports Citigroup Inc. is anticipating prices to drop beginning next week, returning prices to the $30 a barrel mark.

 

 

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