Today it’s all about the much anticipated summit this weekend. Although you likely still won’t know quite enough to attend the summit after reading this, we hope to provide you a solid background.
Who is going?
The countries attending produce roughly 60% of the world’s oil and include both OPEC and non-OPEC members. The expected attendees include Russia, Saudi Arabia, Qatar, and Venezuela, all of whom were part of a preliminary agreement to freeze production that began in February. Along with the initial four will be Algeria, Angola, Azerbaijan, Columbia, Ecuador, Indonesia, Iraq, Iran, Kazakhstan, Kuwait, Mexico, Nigeria, Oman and United Arab Emirates. Of the 13 OPEC members, only Libya will be absent.
What will they discuss?
Discussions will center around a proposed oil production freeze of about 47 million bpd. The major stumbling block appears to be Iran’s objection to the freeze from the beginning. Iran said it will only send a representative to observe the discussions and will not freeze production until it reaches pre-sanction levels.
Expectations of an agreement at the meeting are quite low. Even if a deal is reached, keep in mind it’s simply a freeze, not a cut in production. A freeze is a step in the right direction, but only a meaningful cut will begin the process of rebalancing supply and demand. Saudi Arabia and Russia are the world’s largest producers and have held production steady this year – although their “steady” production is near record levels.
The last time OPEC and non-OPEC suppliers met was in 2001 and the meeting agreements didn’t quite match the end results. Russia, Mexico, Oman, Angola and Norway were to cut supply by a combined 500,000 bpd but as illustrated in the graph, not all parties actually participated in this cut.
Where and When is it?
The meeting is in Doha, Quatar and will be held this weekend – Sunday, April 17, 2016.
Why and how will this impact the market?
Since the preliminary agreement in February, crude has rallied more than 30% and has gotten above $40/bbl. The anticipation of the Doha meeting has likely contributed to the four month high crude reached this week.
However, if the meeting doesn’t produce an agreement, some analysts think prices may fall sharply. Citigroup has stated that this may have a “severe negative impact,” and Saxo Bank A/S thinks that the lack of a deal could drag prices down to $30/bbl.
Alternatively, if the outcome of the meeting is a weak deal, analysts are unsure how the market will react. Monday should be interesting, to say the least.