There is too much oil in the market; that’s an undeniable fact. That global crude prices are persistently languishing at less than half the level it averaged at the start of the decade, straining the finances of producers around the world, then, comes as no surprise.
As Opec members and non-Opec Russia are meeting on the sidelines of the International Energy Forum in Algiers, stakes are high if they fail to reach an output cut, or freeze, deal. More than 800,000 bpd of additional crude is being pumped into the market this month compared with August as Russia produces at an all-time high, while Libya and Nigeria restore supplies. That would mean a tripling of the current surplus, estimated at 400,000 bpd by the International Energy Agency.
With crude prices having dropped more than half from their 2014 peak, here are some of the hard-to-miss plays in the oil market.
Russian production hit record highs of 11.75mn bpd last week, while Saudi Arabia is pumping close to a record 10.7mn bpd. Iran is producing near the pre-sanctions level of 3.6mn bpd over the past three months; the country still insists on being allowed to reach 4.2mn bpd. Iraq has increased production the most in percentage terms since the Opec strategy to maximise output was adopted.
The Organisation of Petroleum Exporting Countries pumped near a multi-year high of 33.24mn bpd in August. The US output has fallen this year but its rig count, a sign of future production, has risen for 12 of the past 13 weeks.
The oil market is in a “much more critical” state than when Opec last met three months ago, and its members must seek ways to shore up crude, possibly by freezing or trimming production, according to Algeria’s Energy Minister Noureddine Boutarfa.
Iran, whose insistence on reaching the pre-sanctions oil production levels eventually thwarted an output cut deal in April in Doha, on Monday downplayed the chances of reaching a production-restraint accord in Algiers. But several other members of the group are pitching for steps to tackle the glut.
There are now high hopes of Opec of deviating from a two-year-old policy of pumping without limits – which succeeded in hurting rival suppliers but also sent prices into a free fall – in Algiers. But many producers also have conflicting priorities, with Iran, Iraq and Nigeria determined to restore lost production, while Russia and Saudi Arabia target near-record supplies.
All but two of 23 analysts surveyed by Bloomberg last week predicted there won’t be an agreement in Algiers tomorrow. “If they do not freeze, they risk sending the price into the $30 to $40 a barrel range,” said David Hufton, chief executive officer of PVM Group in London.
Every market player agrees current oil prices are not sustainable. Despite the emergence of renewables, global energy security depends mainly on fossil fuels for the foreseeable future. And it calls for a stable oil market which can cater to the needs of both producers and consumers alike.
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