Agreement on $70 Price Floor at OPEC, Non-OPEC Meeting Unlikely, Say Analysts

Analysts believe agreement on a $70 price floor for crude will be unlikely

Analysts believe the planned Venezuela led October 21 meeting of the Organization of the Petroleum Exporting Countries (OPEC) with eight non-member countries will be very unlikely to achieve an intended goal of establishing a $70 price floor for crude, Reuters reports.

Analysts' cited reasons for the failure include the fact that lead OPEC nation Saudi Arabia has shown no interest in the proposal, and major non-OPEC producer Russia has all but ruled out production cuts - seemingly the only way by which the oil glut can clear and prices improve.

The eight non-OPEC countries that have been invited to the meeting are Azerbaijan, Brazil, Colombia, Kazakhstan, Norway, Mexico, Oman, and Russia.

While some say that the meeting "will be doomed from the start," others believe it may nevertheless be the first steps in a more cohesive approach to pricing between the OPEC and non-OPEC oil producers.

"Signing up to a $70-$100 band doesn't seem too difficult for anyone," said Paul Horsnell, head of Commodities Research from Standard Chartered.

"As long as there is no automatic mechanism linking the band to output, it seems a very low cost way of expressing solidarity with the aspirations of other members."

While it is clear that the oil producing nations believe prices should rise, the question remains as to what the magnitude of that rise can be.

Iran's Oil Minister Bijan Namdar Zanganeh says most of the OPEC members believe $70 to $80 per barrel for crude would be a "fair" price, while other OPEC members including Iraq and Angola have pointed to a $75 to $80 per barrel range as being more appropriate.

But at that level, some analysts think key Gulf members would worry about losing too much of their market share, while also allowing a significant amount of U.S. shale oil back into the market.

"But set the floor $10 lower and it could work," suggested one analyst.

In August crashing oil prices sent bunker prices in some major ports to their lowest level in 10 years.