Oil prices had soared 5% Tuesday, but gave up all those gains as hopes of a deal to cut production fizzled. Oil ministers from Saudi Arabia and Russia met Tuesday and agreed to a tentative deal to freeze production -- a small step that won't meaningfully impact the massive supply glut. Also participating in the meeting were representatives from Qatar and Venezuela, according to a source who attended the meeting. After trading above $31, the price of oil fell back below $30. Though there was little progress, some observers were still hopeful that key players were at least talking. Officials stressed that discussions would continue.
"We will start intensive communication almost straight away with other major producers, OPEC, non-OPEC, including Iran and Iraq," said the Qatari minister of energy and industry. Saudi Arabia's oil minister said: "We don't want significant gyrations in prices. We want to meet demand and we want a stable oil price." However, the Saudi minister added: "We don't want reduction in supply." World markets are still awash with oil because OPEC and Russia are pumping out barrels at a record rate, and U.S. shale production is falling only very slowly. At the same time, demand is faltering due to weaker global economic growth. OPEC members such as Nigeria and Venezuela have been leading the calls for a coordinated production cut to boost prices, but Saudi Arabia and other low cost producers in the Gulf have thus far refused to play ball. They worry that without a broader agreement including producers outside the cartel, and Russia in particular, OPEC would simply surrender more of its shrinking market share. Several rounds of exploratory talks have taken place in the past few months, fueling oil price volatility as traders bid up prices in the hope of a deal only to sell again when the effort falls flat. Tuesday's meeting brings together the global oil market's top two exporters. But there's no guarantee of a deal. Still, investors appear to be betting that the flurry of diplomacy is making progress -- oil prices jumped 12% alone on Friday, just a day after they plummeted to $26.05, the lowest level since May 2003.
Online article can be found at: http://money.cnn.com/2016/02/16/news/economy/oil-price-saudi-russia/index.html?iid=SF_LN
I think it will be extremely difficult for these countries to come to a mutually agreed upon decision. When it comes to cutting production and increasing prices, if all countries except one cut production and increase prices, then the one country will gain greatly due to their lower price and take over the market. There is likely a very large reward to cheating the others and it seems unlikely that all of the countries will be able to agree upon a certain price level without any problems.
ReplyDeleteWhile there seemed to be an overarching theme of bleakness within this article, the predicted forecast seems to have some sense of a positive outlook. The article left me with several questions. What is the time frame in which this production cutback will have an actual impact? It will be interesting to see if Venezuela, seeming to have suffered for quite some time with oil and desperately needing to see a change in prices, will begin to see a change. Venezuela, in addition to many other third world countries needs for this cutback to take effect and though they were just talks, talking can perhaps be rather impactful in the long run.
ReplyDeleteI think it will be a long time until we see a mutual agreement between the major producers of oil. It seems to easy for one country to take advantage of this. Thus, if one country doesn't follow the agreement. The overall plan will fail.
ReplyDeleteWell I think this article says what has been on the global mind for a while. I disagree with Mike, I think that these talks will prove to be unfruitful for a while. Realistically Venezuela and Nigeria badly need these oil prices to go up. Venezuela is clearly under extreme inflation and Nigeria is looking at daunting coming of inflation with a jump to 8.8 percent inflation in first month of the year. Both benefit far greater from the hold of production than let’s say Saudi Aribia. I think it’s relatively clear that OPEC is trying to produce more oil in hopes of driving prices so low that American shale firms can’t stay in the market. Since Saudi Aribia and Qatari are not in need of this of higher oil prices, they have time to wait out this storm and it will be far more beneficial for them in the future. I think this then plays into what Skye said: hypothetically even if the rest of OPEC agreed to cut production, the U.S. has absolutely no incentive to fallow, and most likely be the cheaters in this game who profit the most.
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