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OPEC Report: Optimism fades ahead of Doha meeting

Published: 09:44 15 Apr 2016 EDT

doha
The great and the good of the oil world are in the Qatar's capital from Sunday.

The oil market is focused on the gathering of oil producing ministers and officials in Doha on Sunday.

Analysts are divided on what might happen as the sense of optimism for higher prices seems to be fading, but all is not lost in the longer term, as the International Energy Agency says the fundamentals looked set “to move closer to balance in the second half of the year.”

The option on the table on Sunday is to agree a freeze at January levels.

Since the mid-February initial agreed freeze, the crude oil price has strengthened by about 30 percent.

The big investment banks are divided on what might happen, with Morgan Stanley still maintaining a “downbeat oil view”, but Bank of America looking forward to a US$50 level.

Barclays says any agreement will just serve to keep the price from falling further. While Iran may attend the meeting as observers, they have made it clear they have no intention of freezing or cutting production.

The IEA and OPEC both released their monthly oil market reports this week.

The IEA says it sees oil demand growth weakening, to around 1.2 million barrels per day this year, less than the 1.8 million barrels increase in 2015.

The decline is due to “notable decelerations take hold across China, the United States and much of Europe.”

The IEA noted that global oil supply is down slightly at 96.1 million barrels a day and OPEC production fell to 32.47 million barrels a day in March; that's down 90,000 barrels a day. Production from Saudi Arabia has fallen slightly but it’s currently holding at 10.2 million barrels a day.

The health of the global economy has always had a direct impact on oil demand growth.

And the IEA sees a slowdown in the US and in OECD countries and the shift in China from a manufacturing to a consumer society is also dampening global oil demand.

India looks like it could become the “main engine of global demand growth” in coming years as lower oil prices have helped stimulate demand.

The IEA sees India’s strong oil demand growth at around 300,000 barrels a day.

OPEC’s report for April agrees with the IEA, saying it sees world demand growing by 1.20 million barrels per day in 2016, 50,000 barrels a day less than expected previously.

This is partly due to warmer winter weather and the removal of fuel subsidies in many countries. Like the IEA, the state of the global economy will impact demand with developments in Latin America and China a concern.

"Current negative factors seem to outweigh positive ones and possibly imply downward revisions in oil demand growth, should existing signs persist going forward."

In the event of an agreement to freeze production by OPEC and non-OPEC players on Sunday, the oil price may get a boost in early trading on Monday, but traders are worried the reverse could happen if no agreement is reached.

The IEA said it didn’t matter either way as "the impact on physical oil supplies will be limited."

Listen to OPEC’s April Monthly Oil Market Report Podcast click here.

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