OPEC, non-OPEC agreement: hard to reach, harder to stick to

Oil&Gas Materials 10 February 2016 12:55 (UTC +04:00)

Baku, Azerbaijan, Feb. 10

By Aygun Badalova - Trend:

Amid the wide spread news about the readiness of some oil producers to discuss the possible production cut in order to stabilize the prices, the agreement on this is very unlikely, oil markets analyst at the US research company IHS believes.

"It would be very hard for OPEC and non-OPEC producers to agree exactly who would cut how much (particularly while Iran is trying to increase production and recover market share) and even harder to then stick to this agreement," Spencer Welch, director of Downstream Consulting at IHS Energy told Trend.

"It would be even less likely that this would happen if some significant producers were not part of the agreement, because effectively those not part would be benefitting, getting increased price and increased market share," he added.

Welch believes that those reaching agreement would be providing an incentive to those not part of the agreement to increase production and gain market share.

"And therefore, this is very unlikely to happen", he said.

Iran's Oil Minister Bijan Zangeneh said on Tuesday that the country is ready to negotiate with Saudi Arabia over the current situation on oil markets, according to Iranian media reports.

"We support any form of dialogue and cooperation with OPEC member states including Saudi Arabia," Zangeneh told reporters.

Last week Saudi Arabia's oil minister Ali al-Naimi talked about cooperation between OPEC members and other oil producers to stabilize the global oil market with his Venezuelan counterpart, but there was no agreement to hold an early meeting of suppliers.

Venezuela is an initiator of holding an urgent meeting with involvement of non-OPEC producers to discuss the possible production cuts. Reportedly, six countries, including Iran, Oman and Russia have already agreed to hold a meeting.

With regard to the oil prices, Welch said he expects the oil market to come back into supply-demand balance in the second half of2016.

The re-balance will be the result of increasing demand (mostly Asia and Middle East) and reducing supply (mostly North America), he believes.

"Only once the market is rebalanced will oil price start to increase, but slowly," Welch said.

According to the estimates of the International Energy Agency's (IEA), the global oil supply dropped 0.2 million barrels per day (bpd) to 96.5 million bpd in January. IEA expects global oil demand to ease back considerably in 2016 to 1.2 million bpd.

The US Energy Information Administration (EIA) forecasts the supplies from OPEC countries will increase up to 39.16 million barrels per day in 2016 and up to 40.01 million barrels per day in 2017.

The supplies from the countries-non-OPEC members are expected to reduce up to 56.77 million barrels per day in 2016 and up to 56.68 million barrels per day in 2017.

Speaking about Iran's return to global oil market following the sanctions removal, Welch said that obviously Iran increasing production will increase oil supply, but this is expected and most likely already priced into the market.

He said that IHS expects an additional 400,000 barrels per day of Iranian oil by mid-2016 compared with 2015.

Iran's current oil production is estimated to be around 2.8 million bpd, of which about one million barrels are exported.

Free of sanctions, the country plans to increase its oil export by 500,000 bpd, and then raise the figure by another 500,000 to two million bpd within a six month period at the next step.