"Big Disagreements Inside OPEC" Make Any Freeze Agreement Unlikely: Russia

Alexander Novak says his nation is ready to consult "beyond the framework of OPEC summit"

It's still unclear if a proposal to freeze oil output will even be mentioned at the upcoming June 2 Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna, but nonetheless Russia is preparing for any eventuality by declaring publicly that it won't take part in the summit, simply because it isn't a member-state.

Privately, however, Alexander Novak, energy minister for the former Soviet Union, told reporters that his nation is ready to consult "beyond the framework of OPEC summit involving both OPEC members and non-OPEC members if they arise.

"Most probably we will take part in them given the fact that we've always participated in such consultations."

But Novak doubts if a second attempt at freezing output (the first was shot down by Saudi Arabia on April 17 in Doha because Iran refused to limit its own production) is feasible: in noting that global oil supply exceeds demand by 1.5 million barrels per day (bpd) and the average oil price in 2016 is between $40 and $50 per barrel, he said, "In my opinion, any decisions on coordination which would require an obligatory fulfilment, are unlikely to be taken.

"Because we see quite big disagreements inside OPEC on the further development of the situation and on what should, or opposite, should not be done for the market to reach a balance."

JP Morgan in its Oil Market report last week also doubted that the OPEC meeting will result in a deal that eluded the 18 nation participants at Doha, and that Iran would only consider a freeze if they reached a production level of 4 million bpd.

However, Oil Market analysts added that "by the same measure, the recent developments in Saudi Arabia, following the replacement of Ali Al Naimi with Khalid Al Falih as Minister for Energy, Industry and Mineral Resources, raises a question over whether these production gains will prompt a renewed focus on market share between the Middle East Gulf producers."

When oil was languishing around $30/bbl, some saw an output freeze as a necessary driver to help support prices, even though others in the months leading up to Doha criticized the proposal as being of no benefit to the market problems because of the sky-high output of OPEC member nations.

Since then, oil prices have indeed been climbing, taking bunkers along with them.

Earlier this month OPEC delegates stated that current market conditions are such that a second round of talks is unnecessary.