Now that the Federal Reserve meeting from last week and its subsequent decision to postpone an interest rate increase are in the rear view mirror, OPEC’s September 26-28 informal meeting at the International Energy Forum in Algeria is in the on-deck circle. As oil is currently rallying this morning, after dropping over 3% on Friday, there are still mixed signals and skepticism as to whether a production cut or freeze will materialize. “Given that OPEC has failed to agree on much of anything in the last 12 months, it seems unlikely that it will start now,” said an analyst for CMC Markets UK, as reported by the BBC.
Saudi Arabia, the world’s largest oil exporter, has offered to reduce its output to January levels if Iran puts a ceiling on its own output this year. Iran, however continues to produce as its goal remains getting to the pre-sanction level of four million barrels per day. Iran’s current production level has reached 3.8 million barrels per day. Iran was not present at the previous OPEC meeting in April so having it in attendance in Algeria has given some pause as to what may or may not occur. Another factor to consider is the ramped up production of Libya and Nigeria, which counters the wishes of Algeria and Venezuela to strike a deal. “I expect Algeria and Venezuela to keep pushing for a deal – it’s imperative for them to keep the price up,” said an Australian based Chief Investment Officer. This comment was dampened however by the suggestion from an SEB commodities analyst stating to Reuters that, “They will come away with nothing, because it is too difficult. How can they decide a freeze when Libya is on the doorstep of returning production, or Nigeria for that matter?” When coupled with Russian supply, now pumping at an all-time high and the expected slowing of demand growth, the overall oil surplus could continue into late 2017, as projected by the International Energy Association.
While any production agreement is not likely at this informal meeting, rumored talks could set the table for the upcoming official OPEC meeting on November 30th in Vienna, Austria.