Hopes that an oil production freeze could result from a meeting between
OPEC and non-OPEC oil producers this coming Sunday are looking increasingly
over-optimistic as a number of countries attending the summit could scupper any
chances for a deal.
At least 15 major oil producers that account for 75 percent of the world's
oil production are expected to attend the April 17 summit in Doha, Qatar this
weekend. Oil prices have rallied of late on hopes that oil exporters, suffering
from lower oil revenues on the back of a slide in prices and glut in supply,
could be ready to unanimously agree to freeze production levels in order to
stabilize and rebalance oil markets.
The 13 members of the OPEC oil producing group, which is led by Saudi
Arabia, are to attend as well as Russia, Oman and Bahrain, all non-OPEC
producers. Mexico is reportedly participating as an "observer" but
the U.S., another major shale oil producer, is not attending although it has
seen its own oil output decline dramatically following the slump in prices
since mid-2014.
Local men wearing traditional khandura dress, also known as the dishdash,
sit on a stone bench outside the Dubai Mall in Dubai, United Arab Emirates.
The only problem is that all the producers will have to agree to cut
production if a deal is to be reached, not an easy thing to achieve with
geopolitical rivalries at play and differing economic needs to meet.
For example, Saudi Arabia has said it will entertain a production cut only
if Iran, its regional rival, does the same. Iran, meanwhile, has said it does
not want to cut production and is determined to regain its share of the market
as it seeks to recover from years of international sanctions. In fact, Iran has
said it will attend the meeting but will not talk cuts.
Similarly, some countries in Latin America have already cut production and
others are reluctant to cut production in a bid to support prices, concerned
that investment will suffer and suspicious that other countries won't abide by
any agreement.
As such, there are widespread doubts that a deal will be reached in Doha.
Miswin Mahesh, oil analyst at Barclays, told CNBC that a number of countries –
like Iran -- looked more likely to ramp up production, rather than cut it once
domestic infrastructures were improved.
"The producers that matter are all there but the important thing is
what they do and this is to do with a circle of trust," Mahesh told CNBC
Europe's "Squawk Box" on Monday.
"Added to the fact that there's geopolitical rivalry between Saudi
Arabia and Iran, (any deal) doesn't work from two angles – from the political
angle and from the fairness angle and the fact that (Iran) has been offline
because of the sanctions."
"With Iran and Libya there's certainly a lot more bandwidth on the
upside whereas Iraq is a special case because they've had a great run over the
last 6-12 months in terms of ramping up production from the south and the north
and they could technically be flat for the rest of the year because of the
infrastructure limitations. But they would still not be willing to sign up to
the freeze because they think that all that capacity is un-utilized," he
added.
Oil prices are currently hovering around the $40 a barrel mark, having
recovered from just below $27 a barrel in January. But analysts, including
Mahesh, have stressed that lower prices are needed to force producers to cut
output and rebalance supply and demand.
"The ideal balancing price is around $30 a barrel. That's when you're
starting to see the pain and U.S. producers are starting to adjust etc. but
between $40-$50, quite a lot of them have now become so efficient that they can
start producing at those levels."
(
CNBC)