Uncertainty lingers over outcome of Algeria OPEC meeting

Oil industry watchers are divided over whether an informal meeting of OPEC members in Algeria on Sept. 27 will lead to a revival of efforts to cap output, even as the case for a production freeze grows stronger, analysts told Argaam.

It remains to be seen whether Saudi Arabia—the world’s biggest oil producer— will agree to keep Iran out of freeze talks to boost prices, or will continue with its strategy to defend its market share. Just days before the Algiers meeting, it was reported that Saudi Arabia offered to reduce its oil production if Iran caps its own output this year, sources familiar with the matter told Reuters.

Meanwhile, crude prices have tumbled nearly four percent ahead of the upcoming assembly as supply continues to exceed demand and concern over an ongoing glut deepens. The number of active oil rigs in the United States also rose by two to 418 last week, according to the latest data from oilfield-services giant Baker Hughes.

Brent crude, the benchmark for half of the world’s exporters, was last trading down 3.69 percent on Friday at $45.89 a barrel, while West Texas Intermediate (WTI) fell 3.97 percent at $44.48.

“There is a possibility of reaching an agreement in Algiers, but it could face many difficulties: the production levels in each country, the gradual return of Nigeria and Libya to the market, [and] the timing of the production freeze,” said Mohammad al-Sabban, a Saudi economist and former senior adviser to the kingdom’s oil ministry.

Iran’s insistence on restoring crude production to pre-sanctions levels– which led to a collapse in freeze talks in Doha earlier this year– is still a concern that could hamper a potential deal.

Another challenge that will arise is adopting a mechanism to monitor production levels, he added.

Abhishek Deshpande, chief energy analyst at France-based Natixis, agreed that there is a strong case for an imminent production freeze, but said it was unlikely that Iran would increase output anytime soon.

“Although the probability is higher than Doha in terms of striking a deal, the ball is really in Saudi Arabia’s court for the time being because Iran is unlikely to produce substantially more for the next 12 months,” he explained.

Meanwhile, Robin Mills, chief executive of Dubai-based Qamar Energy, said the meeting next week is unlikely to result in any action as it is an informal one, noting that OPEC is likely to wait until the next formal meeting on November 30.

“Algiers will probably just conclude with some more expressions of exploring cooperation with Russia and other non-OPEC producers,” he said.

Edward Bell, commodity analyst at Emirates NBD, echoed Mills’ views over the unlikelihood of an agreement being reached. 

“Too many countries will want to insist on exemptions to their own production levels, making any freeze agreement meaningless. My expectation is that the market will need to brace itself for more rather than less oil from OPEC producers in the months ahead as Nigeria, Iran and potentially Libya see output increase,” he said.

Libya’s oil production has climbed by over 70 percent to 450,000 barrels per day this month from August levels, Bloomberg reported.

Other OPEC members, meanwhile, appear keen to reach an agreement to cap output soon.

Last week, Falah Al Amri, director general of Iraq’s Oil Marketing Co, said that the time is right for the group to reach an agreement on output, while Algerian energy minister Noureddine Bouterfa said that an extraordinary meeting could be held to discuss oil prices immediately after the informal gathering in Algiers, agencies reported. 

Write to Jerusha Sequeira at jerusha.s@argaamnews.com