The success of the April 17 meeting of major oil producers in Doha will be a major step forward in stabilising the global oil market, which has been challenged by declining prices since mid-2014.
Faster rebalancing in the oil market is possible if a level of trust can be established between Opec and non-Opec producers in Doha.
Doha’s decision to host the high-level ministerial meeting on April 17 follows ongoing discussions among Saudi Arabia, Opec president Qatar, Venezuela and Russia on proposals to freeze production.
Qatar has said around 15 members, both from the Organisation of the Petroleum Exporting Countries and non-Opec producers, accounting for about 73% of global oil output, are supporting the initiative
Obviously, the Doha meeting’s success remains contingent on a workable agreement that can be reached between the major oil producers, both within and outside the Opec. In this context, Iran’s stand is very crucial.
A Bloomberg dispatch said Iranian Oil Minister Bijan Namdar Zanganeh would attend the Doha discussions but won’t join a production freeze, citing a source.
The International Energy Agency (IEA) said that Iran, in its first full month freed of nuclear sanctions in February, lifted its oil production to a four-year high of 3.22mn barrels a day.
Top producer Saudi Arabia said it would only freeze its oil output if Iran and other major producers do so.
“If all countries including Iran, Russia, Venezuela, Opec countries and all main producers decide to freeze production, we will be among them,” said Saudi’s Deputy Crown Prince Mohamed bin Salman.
Analysts say even a commitment in Doha to freeze supply output at January levels can go a long way in stabilising the global oil market.
According to Samba Financial Group, Futures prices have ticked up a bit in recent weeks, but are still below the “full cycle cost curve” for many, if not most, producers.
This suggests that current low prices are unsustainable, and it continues to project prices higher than the futures market.
That said, the slump in prices this year, weaker global growth prospects, still high stocks, and the only slowly developing supply response, have caused it to revise down its 2016 average Brent price projection to $40 for a barrel.
However, Samba still expects the market will start to “rebalance” this year as the massive cuts in oil investment over the last couple of years begin to be reflected in lower supply.
Prices may well be “volatile” as financial investors adjust positions but Samba projects Brent will average $60/b in 2017.
Estimates for 2015 confirmed that oil demand grew strongly at around 1.5mn bpd as lower oil prices helped stimulate demand in advanced economies, particularly the US, pushing OECD (Organisation for Economic Co-operation and Development) demand up around 0.4mn bpd.
This added to steady growth in non-OECD countries, particularly China and India.