I wish I could tell you that yesterday’s freeze meeting in Doha, Qatar was a success. I wish I could tell you that Iran and Saudi Arabia could cooperate and agree to a workable freeze. I wish I could tell you that OPEC and non-OPEC countries are going to work hand-in-hand to bring stability to the global price of crude, and I wish I could tell you that the global oversupply of crude oil is going to ease. Well, not only did Iran not agree to any production freeze, it skipped the meeting entirely. Iranian oil minister, Bijan Namdar Zanganeh did not send an emissary to Doha because he believes agreeing to a freeze, or even being a part of the freeze talks would be like “imposing sanctions on ourselves.” Iran’s Western sanctions were lifted earlier this year, and it has no intentions of shooting itself in the foot.
So where do we go from here? Well, some market analysts believe that crude prices may drop to or even below $30/bbl, most likely testing the January low of $26.19, while the more bullish analysts see higher prices in the long run. It all comes down to production and supply. While Iran, and Iraq for arguments sake, both continue to pump more and more bbls/day into the global market, which increases supply and pushes prices down, microeconomic events help reinforce the price. After yesterday’s disappointing news, the price of both WTI and Brent dropped significantly; however a 60% decrease in Kuwait’s crude production due to a workers’ strike has lifted prices this morning. The global market is going to rely on events such as this, along with any bullish news, to counter the oversupply and bring balance to the scale.
While U.S. shale producers have been able to “weather the storm” by increasing their efficiency and well utilization, the anticipation and belief was that $50-$60/bbl was on the horizon. Rig counts fell last week to the lowest level since November 2009, at 351, and U.S. production painfully dropped under 9mbpd. This cannot be ignored, as the long term objective of Saudi Arabia was in fact to shut/slow down U.S. shale production. A global production freeze and higher prices, however, would put that objective in jeopardy.
The market is down on all fronts this morning. WTI is down over 2.5% at $39.16, RBOB is down over two cents and heating oil is down roughly one cent. It will be interesting to see how the week plays out after the ice melts from a very unsuccessful meeting in Doha.