The tale of the Oil Output Freeze deal so far!


In September 2016, oil has witnessed a volatile situation at the back of the OPEC meeting due on 28 September in Algeria. Last week itself, WTI oil surged to US$46.55 getting support from the positive outcomes that market otherwise expected from the preparatory talks (informal discussions) at Algeria. However, a lot of buzz came in from the OPEC preparatory talks on the sidelines of the International Energy Forum.

Are Iran and Saudi Arabia rubbing their hands off the deal on production freeze at current levels? The oil price rally came to an end when the price slipped 3.2% on September 23, 2016 post what was seen as a clash between Iran and Saudi Arabia over the details of the output freeze deal. Saudi Arabia is said to have proposed cutting production to January levels, as indicated by the Algerian Energy Minister, Noureddine Boutarfa.

Russia’s and Tehran’s stances: There have been speculations about OPEC and Russia coming to terms in order to stabilise the oil market. It has been said that Russia might join discussions only after a consensus is reached by the OPEC members. On the other hand, Tehran is being said to trying to get its production back to at least 4 million barrels a day from the current level of about 3.6 million barrels a day.

Thus, most of the economists and market experts are highly speculative of the any deal given the shape that recent discussions have taken up. Nonetheless, a production cut from Saudi Arabia and move towards an agreement, might altogether result into a different scenario and this may support the oil market’s position. Oil prices have plunged the most in the last two months while there are chances of having a future OPEC deal. Another key question to ponder over remains whether most of the OPEC members stop the production at average first half 2016 levels while Iran goes for a 4 million barrels a day production. There have been expectations that actual deal targeting production levels will see some shine early next year at the back of Iran reaching the proclaimed target. Further, there are possibilities that Brent prices might average at $US46 a barrel in the fourth quarter while there are less chances of any production freeze or cut which otherwise might bring a big upward movement in prices (USD 4/ barrel to USD 10/ barrel). Overall, the need to have an action plan in place is emerging quite strongly from the discussions so far keeping in mind that the next official meeting is to be held in November 2016, which is not very far away.

On September 26, 2016, Brent jumped $1.51, i.e., 3.3% to $47.41 a barrel post the 4% fall of last week. The final outcome of the OPEC meeting is now awaited, which is expected to give some direction to the above.

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