The oil price remains range-bound this week as traders and investors nervously await the International Energy Forum’s gathering in Algeria next week.
In early trading on Friday, Brent crude was priced above US$47 with WTI close to US$46 a barrel.
What might or what might not happen when key oil producers meet in Algiers on the sidelines of the IEF meeting, is anyone’s guess.
This is the 15th ministerial meeting of the organisation and while the OPEC gathering was announced as an informal meeting, Algeria’s Energy Minister Noureddine Bouterfa told Algerian radio that the gathering could be transformed into a formal extraordinary OPEC meeting if the situation demanded.
OPEC’s Barkindo is optimistic
The OPEC Secretary General, Mohammed Barkindo told reporters he was optimistic about the meeting and he did not rule out having an extraordinary meeting.
The analyst community remains skeptical about the prospect of any positive and definitive outcome.
The global head of commodity research, Ed Morse spoke to Bloomberg this week, and said that a freeze of production would be difficult.
Adding to complications with production increases in Iran and Iraq in the past year, Morse said the recent new production from Libya and Nigeria also needs to be taken into account.
The oil supply in both countries has been limited due to their own political turmoil and they are eager to be back in business.
Expecting them to agree a cut in production might not be manageable.
With Russian production currently above 11 million barrels a day, Morse also added, “no Russian contribution to a freeze is believable.”
Saudi Arabia and Russia have actually ramped up
Saudi Arabia and Russia have indicated that they will take measures to help stabilise the market, but the recent data proves that both countries have been ramping up production.
The key producers and ministers have to face tough decisions and while OPEC’s next official meeting is not until the end of November, the rebalancing of the market has not occurred and the supply of oil increases by the day.
Maintaining market share has been an important strategy, but at prices lower for longer, all producers are feeling the pain and the industry is suffering.
Many ministers have hinted at a manageable more stabilized market price around US$60 a barrel, but this target remains wishful thinking, even if some of the major investment banks agree.
A freeze would have limited impact on oil market
A freeze in production may look like a conciliatory move, but its impact on the market will be limited.
Global oil demand is on the decline as economic uncertainty brings a sense of stagnation to the world.
The International Energy Agency reviewed its global oil demand expectations for next year by 200,000 barrels a day to a total of 97.3 million barrels a day.
Global oil demand growth for this year should still be around 1.3 million barrels a day, but that was also revised down by 100,000 barrels a day as the agency fears slower economic growth in India and China and particularly in the developed world.
There will be little movement on the oil market in the coming days as all eyes will be on Algeria until the end of Wednesday.
Many countries may not be willing to accept a cut or even a freeze in production as domestic demands will continue to pressure any decisions for the collective good.
If any agreement is reached to cut production, it will certainly be welcomed by the market as it has been eight years since OPEC last took action to the downside; and that was at a meeting in Algeria.