Chances of oil output freeze deal remain slim

Oil&Gas Materials 15 September 2016 14:54 (UTC +04:00)

Baku, Azerbaijan, Sept. 15

By Aygun Badalova - Trend:

The chances of oil production frezze agreement still remain slim, according to the analysts of the US JP Morgan bank.

However, they raised the likelihood of a deal to 20 percent given the comments from several government officials from oil exporting nations that a deal makes sense, albeit with reservations.

The informal OPEC meeting is expected in late September in Algeria. It is expected that the talks on oil production freeze will be held between OPEC and non-OPEC countries.

The meeting will be held at the fringe of the International Energy Forum in Algiers from 26-28 September.

“We noted in mid-August (when we assessed the risk of a deal being reached at 35 percent), that the attitude of key participants, Iran, Saudi Arabia and Russia, will likely determine the ultimate success or failure of any agreement. The week started with talk of an important agreement between that latter two, pushing futures markets $3 a barrel higher in short order,” JP Morgan’s analysts said in their weekly Oil Market report.

“When it transpired that the deal was to set up a task force to monitor market developments, prices retraced more than 80 percent of their gains. However, negotiations continue and if a suitable form of agreement can be reached then it would be taken positively,” they said.

Analysts believe that “the bigger picture issue for these governments remains that of establishing mutual trust and building relationships that allow for further agreements in the future that can be relied upon, if they require more discipline from all participating nations and that do not buckle under additional pressure”.

Petroleum exporting nations face a difficult choice at this juncture, analysts said.

“Any deal that boosts prices to between $55-60 a barrel could trigger another race for production growth from US shale producers, most of whom see prices north of $55/bbl – and arguably more importantly the opportunity to hedge 2017/2018 production at above $60 a barrel – as sufficiently attractive to ramp up activity levels,” they said.

The announcement this week of additional reserves in the Permian confirms analysts’ expectation that technological progress will lift US crude production in late 2017, if prices recover back to the mid-$50 a barrel range.