- April 18, 2016
- Posted by: Art Berman
- Category: The Petroleum Truth Report
The production freeze meeting in Doha was a no-brainer but it ended mindlessly with no action taken.
OPEC plus Russia and Mexico met yesterday to agree to do almost nothing by freezing production. Instead, they agreed to do absolutely nothing leaving everyone wondering why they even held the meeting.
All that they had to do was agree not to increase oil production above levels in January. They could have modified that to current levels. Probably, that would have ensured that oil prices remain near currently inflated levels that were created mostly by expectation of a production-freeze agreement to begin with.
It should have been a no-brainer because the Doha group’s production is already 130,000 barrels per day less than it was in January (Figure 1). Kuwait, Qatar, Russia, Mexico, Ecuador and Indonesia are all producing slightly more than they were in January but were prepared to go back to those levels.
Figure 1. Doha participants March vs. January 2016 crude oil production. Source: EIA and Labyrinth Consulting Services, Inc.
Iran is producing about 350,000 bpd more than in January and has stated its intent to raise output much higher. Everyone else is producing less or the same as in January.
But this has been clear for months. Iran called the idea of a production freeze “ridiculous” in February and did not even send a representative to the meeting in Doha.
So, what was the point of the meeting?
Hi Art,
Do you really think OPEC will cut in June? From what I see Saudi Arabia, despite the rhetoric, is relentless about crushing marginal producers and will limit output only after meaningful slowdown in non-OPEC countries. Prince Mohammad bin Salman seems to think so.
elthe,
I said, “eventually, there will be a production cut perhaps at the June OPEC meeting.” I don’t think Saudi Arabia is as concerned about crushing anyone as getting long-term benefit for themselves. The crushing has already occurred. Maximizing future income going forward is the game now.
IEA has changed its tone and believes that the market will balance in 2016. I see signs of falling comparative inventories in some U.S. stocks, notably Cushing. If all this plays out positively, OPEC may not need to cut. As I said in my previous post, there are real concerns now about medium-term supply because of under-investment during the last 2 years.
I suspect as I said in that previous post that we are now moving in the right direction but there will be volatility and price cycles on the way up just as there were on the way down. The world economy is the biggest potential obstacle to oil-price recovery.
All the best,
Art
Your insight is invaluable. I personally think the rebalancing will take a little longer due to a rebound in energy debt prices, but I will study what IEA says. Thank you so much!
elthe
elthe,
I am skeptical also about a quick re-balancing of the market. I see signs that point in different directions. I agree with you that oil-market balance cannot be separated from the global economy that is weakened by debt and bad monetary policy.
All the best,
Art
I wanted to get your take of this disturbing news………. Even bankruptcy does not slow these shale drillers down……
http://www.reuters.com/article/us-usa-energy-bankruptcies-idUSKCN0WY3JU
Rushabh,
Bankruptcy is just a way to live another day with less debt. Magnum Hunter CEO Gary Evans is in great shape with full pay running the newly structured company into the same ground he led them to previously. Public companies are a beautiful vehicle for shoveling money out the back door for the entitled who run them.
All the best,
Art