EMEA News
More Doha Rumours Cause Oil to Skyrocket, But Be Prepared for Bearish Outcome
With Saudi Arabia and Russia said to be in agreement to limit oil production output even with Iran not playing ball, crude prices shot up to the highest level in four months on Tuesday.
Brent advanced $1.86, or 4.3 percent, to $44.69 per barrel on the ICE Futures Europe exchange, the highest close since November 27 last year; meanwhile, West Texas Intermediate closed at $42.17 per barrel on the New York Mercantile Exchange, the highest settlement since November 25, 2015.
The dramatic gains - which are just the latest fluctuations to impact the market since members of the Organization of the Petroleum Exporting Countries and non members agreed to discuss freezing output earlier this year - caused Mike Wittner, head of oil markets at Societe Generale SA, to remark, "The market has clearly shifted to the view that an agreement will be reached.
"There are talks going on behind the scenes, and occasionally we get bits of information; people are going to trade on these bits of news."
Matt Sallee, managing director and portfolio manager for Tortoise Capital Advisors, added: "We're going to see a lot of back and forth whipsawing the market ahead of the meeting; I wouldn't be surprised if prices fall Monday."
But as with previous price gains and losses provoked by rumours of what will transpire at the April 17 meeting in Doha, the activity fails to detract from the widespread consensus that the talks will do nothing to rebalance the market.
Jeff Currie, head of commodities research at Goldman Sachs, said in a Bloomberg Television interview that the talks will likely produce "a soft agreement which would not really do anything to fundamentals."
Anything stronger, he added, is "not in anybody's interest right now."
In fact, Goldman Sachs envisions a substantial downsize to the talks: "We see risks that even a production agreement could be followed by sequentially rising OPEC production given the multitude of potential sources of production growth.
"We see greater odds that the Doha meeting delivers a bearish catalyst for oil prices."
For the record, the latest price hike was sparked by Dmitry Peskov, the Kremlin's press secretary, stating that "There is hope" an agreement can be reached regardless of Iran's position – and Interfax on Tuesday citing an unidentified "informed diplomatic source" in Doha that the Russians and Saudis have reached a consensus on the freeze.
Last month, Fatih Birol, executive director for the International Energy Agency, said declines in U.S. shale output are contributing more to the rise in oil prices than talks, and that if a freeze was agreed upon "it would be unexpected that it would have major implications, at least in the first half of 2016."
