Baku, Azerbaijan, April 15
By Aygun Badalova - Trend:
There is no guarantee of a deal between oil producing countries in Doha this weekend, analysts of UK economic research and consulting company Capital Economics said in a report obtained by Trend.
"Saudi Arabia has said that it will not participate in a production freeze unless Iran agrees to join as well and Iran has steadfastly committed to increasing its output to pre-sanctions levels," analysts said.
As it happens, analysts think some sort of compromise agreement is still likely, even without Iran's full participation.
"But given that very few of the countries attending the meeting on Sunday have either the capacity or intention to increase output anyway, freezing production at the current very high level should at best put a floor under prices," analysts said.
On April 17, major oil producers will 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.
They also noted that Brent price almost hit Capital Economics' end-year target of $45 per barrel this week. Nonetheless, analysts stick with their forecast of $60 per barrel in late 2017.
A further recovery in oil prices would surely require outright cuts in global supply and increases in demand, which suggests that the next big move up will not take place until next year when the market should be much closer to balance, analysts believe.
There have been two key drivers behind the recent surge in oil prices, analysts said. First, expectations have risen that OPEC and some non-OPEC producers will agree to freeze production at a meeting in Doha this weekend. Second, there was a surprise drawdown in US crude oil inventories the week before last.
"The amount of oil in US commercial stocks is monitored closely as a gauge of how much excess oil there is in the market. Falling stocks implies that demand is greater than supply," analysts said.
However, there have not been any game-changers in the fundamentals of the oil market itself, they believe.
"Admittedly, the US oil production has started to fall. But the declines are small. US oil output was down by about 1.7 percent year over year in February. What's more, both the key pillars which have underpinned the recent rally could quickly unwind," analysts said.