Complex Made Simple

Doha oil meeting: what’s the point?

All eyes are trained on Doha, where some 15 major crude exporters are slated to meet on Sunday in a move to stabilize the volatile oil market.

 

There are many who believe that the producers, including Saudi Arabia and Russia, will agree to cut or freeze output at January levels, whereas others feel that this initiative will be a repeat of the December OPEC meeting. Meanwhile, some analysts predict that the outcome of the meeting will be less likely to impact the global oil market in the long term.

 

Crude prices fell more than sixty per cent since June 2014 to as low as $27 a barrel due to the widening glut in oil supply. However, oil prices jumped to more than $40 per barrel, the highest level for the year, based on the hope generated that the crucial agreement would be reached during the Doha meet.

 

Saudi Arabia has fired the first shot by saying it will not cut or freeze production until Iran, another OPEC member, agrees to the deal. Iran, though it agreed to attend the meeting, has stressed that it will not agree to a cut or freezing of production until it reaches its own levels before the international sanctions were imposed on Tehran.

 

“Forget about this topic,” Saudi oil minister Ali Al Naimi told a local newspaper on April 13, when asked about any possible reduction in his country’s production.

 

Francisco Blanch, commodity strategist at Bank of America, says that there is hardly any information on what terms and potential outcomes will be discussed at the Doha meeting.

 

“While we see room for cooperation between OPEC and Russia, we also acknowledge that Doha could end up being a repeat of the December OPEC meeting. In other words, Middle East politics could once again trump oil economics,” says Blanch.

 

The International Energy Agency (IEA), which oversees the energy policies of industrialised nations, has said that the deal to freeze oil output will have a limited impact on global supply and markets are unlikely to rebalance before 2017.

 

“If there is to be a production freeze, rather than a cut, the impact on physical oil supplies will be limited,” the IEA said in its monthly report.

 

“With Saudi Arabia and Russia already producing at or near record rates and very little upside seen – apart from Iran – any deal struck will not materially impact the global supply-demand balance during the first half of 2016,” the IEA said.

 

Meanwhile, Christopher Dembik, Economist at Saxo Bank says the outcome of this meeting will be irrelevant as the price of the barrel of oil will not re-establish itself immediately nor sufficiently to balance out the public finances of the vast majority of oil-producing countries.

 

Dembik also observes that Iran and Iraq have increased their output in a move to regain their market share and no “convergence of interests” have been achieved to reach an agreement among the producers. He also feels that the entire focus has been on Iran while Iraq, with its high level of production, poses bigger threat to the oil market which is hit with oversupply.

 

“Without surprise, the monthly production of Iran increased by 13 per cent compared to June 2014 and by 32 per cent for Iraq over the same period. It clearly shows they are not ready for a production freeze. In the short term, the market is focussing on Iran but, in the much longer term, it is the increase in Iraqi production which creates most risk on the supply side,” states Dembik.