Analysts doubtful of oil producers’ freeze plan

While major oil producing countries demonstrate effort to stabilize world market by helping oil prices to recover, analysts doubt such efforts could have any fruitful results.

Oil output freeze as a measure, which will be discussed at the meeting in Doha, is not enough to return balance on the oversupplied market, analysts believe.

Freezing oil output at current high levels would simply maintain the excess supply that is now in place and, as such, would not be a game-changer for the oil prices, Tom Pugh, the economist at British economic research and consulting company Capital Economics believes.

“A sustained recovery in oil prices would probably require outright cuts in global supply and increases in demand,” Pugh said in a report, obtained by Trend.

Geoffrey Styles, managing director of GSW Strategy Group, LLC, an energy strategy consultancy based in Virginia (USA), believes that the freeze under discussion represents a very low bar, compared to past OPEC actions.

In particular, in 1998, following the drop in oil prices below $10 a barrel, OPEC took several steps to affect the market by firstly cutting oil production by 1.25 million barrels per day and then by 1.34 million barrels per day. In 2008 OPEC went through three stages of cutting the oil output by a total of 4.2 million barrels per day. This was the largest cut in cartel’s history.

Styles told Trend that OPEC itself has contributed to the global oil surplus through actions such as Saudi Arabia’s output increase following the failed November 2014 OPEC meeting.

Styles shares the view that if the members of the upcoming Doha meeting can’t agree on a freeze now, then they would appear to be a spent force.

With regard to Iran, Styles does not think the country is required as a party to a deal, since everyone is clear that they will continue to attempt to restore output to pre-sanction levels as fast as they can.

“Growing beyond that point, or even reaching it, will require major investments with lead times longer than the likely duration of the oversupply the freeze is intended to address,” Styles said.

Meanwhile, Edward Chow, a senior fellow in the Energy and National Security Program at the Center for Strategic and International Studies (CSIS) believes that the upcoming meeting in Doha may disappoint the market resulting in just another statement about the readiness to cooperate.

“Frankly I expect very little from the Doha meeting, other than a nice statement pledging future cooperation,” Chow told Trend via e-mail.

He stressed that currently, global supply still exceeds global demand and this is unlikely to change before the end of 2016 or beginning of 2017. “Holding this meeting actually risks disappointing the market if no concrete actions comes from it. It may lead to further testing of the $40 price level,” Chow said.

On April 17, major oil producers are expected to meet in Doha to discuss an agreement to freeze oil output at January 2016 levels. In February, representatives from Saudi Arabia, Qatar, Venezuela, and Russia discussed possible measures to stabilize the current oil market, including the oil production freeze.

Earlier Saudi Arabia stated that it will only freeze its oil output if Iran and other major producers do so. Iran in its turn said that Tehran will not join the oil output freeze plan.

Source: Trend