Doha talks end with worst possible outcome

18 April 2016

Oil exporters meet provides little scope for future cooperation to buoy crude market

For the global oil sector, the meeting of crude exporters in Doha on 17 April ended with perhaps the worst possible outcome. Not only did the meeting end without an agreement to coordinate production multilaterally, it concluded with little hope for future cooperation between Opec and non-Opec countries.

The sticking point in the plan to freeze oil production at January levels appeared to be the absence of Iran – the only major producer with both the capacity and the determination to significantly boost output in the near term.

Saudi Arabia’s influential Deputy Crown Prince Mohammed bin Salman said in the lead-up up to Doha that Riyadh would only support a freeze if all major producers, including Iran, agreed.

Many oil ministers were hoping for an agreement despite the absence of Iran, but this turned out to be the deal-breaker for Saudi Arabia – the world’s largest oil exporter. The deal on the table was an agreement to maintain January crude production levels until October when further talks would take place.

Opec will now meet in June without the presence of major non-Opec producers such as Russia and Mexico. The 13-member organisation, which is already producing well above its previous 30 million barrel-a-day (b/d) quota will be unlikely to rein in Iran, which is determined to boost production and exports to pre-sanctions levels.

Iran’s deputy oil minister said on 16 April that the country is on course to boost exports to 2 million b/d next month, up from as low as 1 million b/d during the 2012-15 period of international sanctions against oil exports.

Geopolitical tensions between regional rivals Iran and Saudi Arabia may have contributed to the breakdown of talks, with Mohammed bin Salman appearing to wield power of the kingdom’s oil policy.

“This meeting and its outcome should have built confidence that the oil market rebalancing was close at hand, as well as building a circle of trust among producers for possible future cooperation and coordinated action,” said Barclays analysts in a note published on 18 April. “In this regard, the meeting was a complete failure.”

“If agreeing to a freeze of output among producers whose output is close to capacity is proving this difficult, then this exercise shows to the market that achieving a cut, should there be a need for one in the future, will be almost a non-starter,” the note added.

Many commentators believed even a positive outcome to the production freeze agreement would have little impact on the market as most producers involved have little scope to boost supplies.

The Paris-based International Energy Agency (IEA) poured cold water on the potential impact of the talks, saying on 14 April that it would have little impact on supply. The IEA pointed out that Russia and Saudi Arabia are already producing at near-record levels and the only potential rise in output will come from Iran, which had already indicated it will not back the deal. The IEA said it is unlikely the market will rebalance before 2017.

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