No fewer than 15 countries have already been confirmed to participate in the meeting between Organisation of Petroleum Exporting Countries (OPEC) members and other oil producers in Russia, scheduled for Moscow on March 20.
Among the participating countries are representatives from Russia, Saudi Arabia, Venezuela, Iran and Nigeria.
The meeting is a key step to freezing output at January levels, as agreed by the world’s two biggest oil producers, Russia and Saudi Arabia, and later joined by OPEC members, Venezuela and Qatar.
The Minister of State for Petroleum resources, Dr Ibe Kachikwu had said that the meeting will take place on March 20 in Moscow to “fine-tune collaborative strategies.”
Russia and Venezuela had previously said a meeting of producers would take place to finalise a deal to freeze production.
Oil prices rose from their lowest point in 12 years last week in response to the first announcement of plans to freeze output at January levels.
However, tension is still high around the negotiation table, and with every participant looking out for his own interest, anything can be expected from the meeting next Sunday.
Oil last week continued its recent rally, with Brent crude clinging on above $40, but there was speculation that most of the gains of the past two months could be undone if OPEC members and Russia fail to finalise their earlier conditional agreement to freeze production.
Speculations are already rife that the meeting may not hold as many of the countries insist they would not be present unless Iran is present.
The critical factor is Iran. Other countries say they will not meet to discuss joining the freeze unless Tehran agrees to sign up for it too, said Reuters.
At present, Iran says it doesn’t want to be included in the deal, as it wants to return to pre-sanctions crude output levels, according to Reuters’ sources in OPEC.
Kuwait reportedly announced it would join the pact only if every OPEC member, including Iran, is joining.
“They are not agreeing on the meeting. Why would the ministers meet again now? Iran says they will not do anything. Only if Iran agrees, things will change,” the source said.
Another source said there’s no point meeting in Russia if the deal will not be struck, because it will push down crude prices. However, the general agreement is that a positive outcome from the meeting would definitely help shore up the price of crude oil from its current levels.
Iran has been offered an output level cap of 2.93 million barrels per day (bpd).
“Tehran wanted a freeze – for them to be based on 4 million bpd, their pre-sanctions production figure,” said a Reuters’ source familiar with the talks.
Almost a month has passed after the announcement of the deal between Russia and Saudi Arabia to freeze crude oil output at January levels in order to battle the ongoing supply glut and the continuous price decline. The deal was backed by Saudi Arabia’s fellow OPEC members, Qatar and Venezuela and eventually Nigeria.
As oil prices fell in the last 19 months, the Saudis were keen on keeping their production high in order to push the more costly Russian and US shale producers out of the market. But now the self-proclaimed OPEC leader is starting to get a taste of its own medicine as the country struggles to plug a record budget deficit of almost $100 billion by rethinking its subsidies and welfare policies and seeking a bank loan of $6 to $8 billion.
US shale oil producers implemented serious spending cuts earlier this year. Russia’s economy, heavily dependent on oil and natural gas exports, took a blow from the dropping prices and was further hit by US and EU sanctions, imposed in 2014 in response to Russia occupation of Ukraine’s Crimean Peninsula. The impact was cushioned somewhat due to the rubble falling more than 40 per cent.
While the market remains oversupplied and even the low-cost producers are starting to bleed, industry watchers say it is in everyone’s best interest to commit to tangible production cuts in order to keep oil prices from taking a turn for the worse again.
Don’t expect immediate price recovery – IEA
Meanwhile, the International Energy Agency (IEA) has warned optimists to show restraint as it is not foreseeing possible balance in supply and demand agreement as OPEC members meet on March 20.
Nigeria has spearheaded a meeting of the oil cartel for possible supply freeze to jump-start price recovery.
But IEA said at the weekend that while oil prices had “recovered remarkably” in recent weeks, this should not “be taken as a definitive sign that the worst is necessarily over. Even so, there are signs that prices might have bottomed out,” the IEA said in its latest monthly report echoing oil markets which have seen a recovery in recent weeks on the back of a weaker dollar which helps to fuel demand.
“For prices, there may be light at the end of what has been a long, dark tunnel, but we cannot be precisely sure when, in 2017, the oil market will achieve the much-desired balance,” the IEA cautioned.
“It is clear that the current direction of travel is the correct one, although with a long way to go. Without an increase in demand expectations, high-cost oil suppliers will continue to bear the brunt of the market-clearing process.”
At the start of the year, prices tumbled to around $26 a barrel as supply continued to outstrip demand, but there are signs that prices could have finally bottomed out, the IEA said.
These, it said, included possible action by oil producers to control output; supply outages in Iraq, Nigeria and the United Arab Emirates; signs that non-OPEC supply is falling; no reduction in our forecast of oil demand growth, and recent weakness of the US dollar.
The IEA maintained its forecast for global oil demand growth for 1.2 million barrels a day (mb/d) in 2016, unchanged from last month.
It said there had been a “sharp deceleration in demand growth in the three months to March, particularly in the US and China.
Meanwhile, speculation has been high that oil producers from both OPEC (the 12-country group led by Saudi Arabia) and non-OPEC countries (such as the U.S. and Russia among others) were due to meet on March 20 to discuss a possible output freeze.
However, a report from Reuters appeared to pour cold water on this.
Citing sources familiar with the matter, the report said that as OPEC member, Iran, was yet to say whether it would participate in such a freeze, the meeting was unlikely to go ahead.
Iran could be forgiven for not wanting to cut output when it has only just started producing again, after years of western sanctions for its nuclear programme halted its oil industry and economy.
Keen to recover its market share, it might not be happy to cut output and other major producers, such as Kuwait, have said they will only commit to the deal if Iran does.
Furthermore, the IEA was not optimistic that any deal, if reached at all, would affect the supply and demand equation much.
“We cannot know what this might be, and in any event it is rather unlikely that an agreement will affect the supply/demand balance substantially in the first half of 2016,” it said.
“Before any production freeze or cut is agreed, we have seen supply disruptions in Iraq, Nigeria and UAE. Production from these countries fell in February by 350,000 barrels a day.
In the meantime, global oil supplies are easing with non-OPEC production continuing to fall.
Non-OPEC producers such as those in the U.S. and Canada tend to have far higher production costs than OPEC producers and have tried to mitigate lower oil prices by cutting production and exploration.
Such moves have had a knock-on effect on lowering non-OPEC oil supply but the reduction has been made up by OPEC supply gains, seen as a strategy by OPEC to maintain market share.
Global oil supplies eased by 180,000 b/d in February, to 96.5 mb/d, on lower OPEC and non-OPEC output, the IEA said, but production stood 1.8 mb/d above a year earlier, “as a slight decline in non-OPEC was more than offset by OPEC gains.”
The IEA forecast that non-OPEC production is estimated to fall by 750,000 barrels a day to 57.0 mb/d in 2016 which is 100,000 barrels a day less than in last month’s report.
“Of course, there is no guarantee that this trend will continue, but there are clear signs that market forces – ahead of any production restraint initiative – are working their magic and higher cost producers are cutting output,” the IEA noted.
-Leadership
