EMEA News
Former OPEC Head Says "Conditions are Set" for Oil Freeze, As Saudis Signal They're Heading For Record Output
Amidst overwhelming consent from analysts that the initiative is either an empty gesture or doomed to fail, Chakib Khelil, former head of the Organization of the Petroleum Exporting Countries (OPEC), says "all the conditions are set for an agreement" to cap production when the cartel and other members meet in Algeria next month.
Khelil made the comments to Bloomberg Television, explaining that "Probably this is the time because most of the big countries like Russia, Iran, Iraq, and Saudi Arabia are reaching their top production level: they have gained all the market share they could gain."
Khelil pointed out that even though a deal would not influence a market rebalance substantially, it would have a psychological benefit in terms of improving market sentiment.
But to say the signals being sent by concerned parties in advance of the Algeria meeting are mixed would be an understatement: sources in Saudi Arabia, for example, are claiming the kingdom could boost its output in August to a new record level of as much as 10.9 million bpd and overtake Russia, which is the world's top producer.
This prompted Olivier Jakob, managing director of Petromatrix, to write in a note, "It would therefore be a very hard sell for Saudi Arabia to have other countries join a collective action plan, while it is the main source of supply increase - outside of Iran post sanctions."
Another expert not buying Khelil's optimism is Edward Bell, director, commodities markets, for Emirates NBD: he told Bloomberg he doubts anything will come of the September meeting because the dynamics between oil producing nations haven't changed since the last freeze talks earlier this year.
He also noted that countries such as Nigeria "would not be in a position to countenance any kind of production cuts, as they are trying as hard as they can to raise production in the face of militant attacks."
He added, “There’s going to be a point where the market says unless we see, say, a million barrel cut from OPEC – which we feel is highly unlikely because of the damage it will do to regional economies – it’s not going to be sustainable that we have these long term rallies.”
And even if a deal was miraculously reached, Tariq Zahir, trader in crude oil spreads at Tyche Capital Advisors, pointed out that with Saudi production and "the U.S. rig count coming back online for several weeks, even if a freeze did happen we would be talking about freezing at higher levels of output."
Earlier this week, Jon Rigby, analyst for UBS, wrote, "Our view is that agreeing a freeze is likely just as difficult as in April (while Iran is approaching pre-sanctions output, Libyan and Nigerian production remains depressed), it's arguably not as needed ... and likely has little effect on actual market balances, with most of OPEC running flat out and Saudi output seasonally ramping down by September after peak summer demand."
