Wednesday , October 18 2017

No output deal seen as OPEC meets in Algeria – Iran remains adamant

Kamal Al-Harami
Kamal Al-Harami

The proposed unofficial OPEC meeting in Algeria before the end of this month will not result in any agreement. We definitely cannot expect any agreement to freeze the production throughput as long as Iran remains adamant about increasing its crude oil production and acting on its own outside the group.

After the biggest oil producers Russia and Saudi Arabia agreed to coordinate their crude oil production levels and stabilize the oil prices, the next logical step is to freeze production in agreement with the OPEC. However, Iran continues to be the biggest obstacle and it is very questionable whether Russia will be able to influence its ally Iran in this regard.

All oil producing countries are in agreement to solidify their position to freeze their throughput in order to push the oil prices up. However, they have to convince Iran to do the same. Any deviation represented by the non-implementation of the production freeze will result in further reduction of the oil price.

Therefore, it is very important for all oil ministers to be clear and avoid any formal meetings if they have not reached a consensus for freezing oil output.  Oil prices are still around $45 level, which seems to be an acceptable level especially under the current circumstances of huge surplus on the throughputs of each country as they are free to produce as much as they can. Meanwhile, Libya and Nigeria will come back to the oil market and resume their production again, which will further depress the oil prices.

The oil market will remain weak and the disagreements over production will continue without any conclusion. There are no signs of improvements and the situation next year will be the same as that of this year. The investments of international oil companies outside the OPEC member states will be lesser in 2017 than in 2016, which will benefit the oil organization.

Therefore, the oil countries, for the time being, will have to live with the current low oil prices but in anticipation for higher demand such that the cheaper oil producers will gain the most.

Therefore, the upcoming meeting in Algeria on September 26 will not witness the reaching of any agreement, as Saudi Arabia will not accept any term without Iran’s total compliance.

email: naftikuwaiti@yahoo.com

By Kamel Al-Harami

Independent Oil Analyst

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