OPEC meeting to take place tomorrow
OPEC forum in Algeria will take place tomorrow, even though it has had to be held today. The meeting was delayed due to a desire to "minimize coincidence of the oil forum agenda and the agenda of oil producers’ meeting." The countries will try to reach a deal to freeze production. The Week analyses chances for a success.
International benchmark Brent crude advanced strongly up to Thursday last week, not least after the Federal Reserve's interest rate hold that hit the dollar and so made oil cheaper for overseas buyers. But on Friday, with the dollar recovering, positive sentiment evaporated ahead of the Opec talks, which take place on the fringes of the three-day International Energy Forum in Algiers, which starts today.
There are signs that Saudi Arabia and Iran, two of Opec's most important producers, are a long way from an agreement on a mechanism for freezing production, saysReuters. As a result, Brent slipped 3.7 per cent to less than $46 a barrel and was down another 0.2 per cent to $45.80 this morning in London. US counterpart West Texas Intermediate fell four per cent to around $44.50 a barrel on Friday. Michael Hewson, the chief market analyst at CMC Markets UK, told the BBC: "Given that Opec has failed to agree much of anything in the last 12 months, it seems unlikely that it will start now." However, Noureddine Boutarfa, the energy minister for Opec member Algeria, continued to sound upbeat on the prospects for a deal this morning, saying the group would "not come out the meeting empty-handed".
Nevertheless, Morgan Stanley summed up analyst pessimism: "Our base case is that Opec will meet… without a formal statement. A non-binding commitment to stabilise oil markets is possible, but it would likely lack teeth," it said.
With previously disrupted production returning in areas such as Libya and Nigeria and global oil-demand growth forecasts being lowered, there are fears the market will remain oversupplied well into next year unless a deal is agreed.
Oil rallied in the past two sessions after bullish data on US reserves and another vote to hold interest rates by the Federal Reserve.
International oil price benchmark Brent crude rose for the second consecutive session overnight and was 1.7 per cent up in London this afternoon to $47.62. US counterpart West Texas Intermediate was up two per cent to $46.26. Sentiment was bolstered following a surprise 6.2 million barrel draw on US oil reserves last week, revealed by watchdog the Energy Information Administration. That's the second-largest reduction this year and, coming just two weeks after a huge 14.2 million barrel drop, adds to optimism that the market is closer to balance than it has been for two years. Last night's decision by the Fed to hold rates also helped as it prompted a fall for the dollar, making oil cheaper for overseas buyers and so stokes demand.
All of which has "emboldened" investors ahead of a meeting of the Opec oil cartel next week, says Reuters. Several members, such as Venezuela, have talked up the chances of an output cap being agreed. Analysts say oil could be set to enjoy "further strength" in New York this evening and through tomorrow. But after that, the rally could run out of steam – as several upward moves have whenever the oil price has approached $50 in recent months. That's because very few experts actually expect an output deal to be agreed, or believe a freeze to current high export levels would be sufficient to justify a more sustained price recovery. Worse, says Nick Cunningham on Oilprice.com, the "disappointment" from the Opec meeting could undermine any and all oil price rallies for months ahead. He points to increases to output still to come through, including from Libya, which this week sent the first oil cargo from the port of Ras Lanuf for more than two years. Nigeria's production is also recovering after sabotage attacks disrupted a number of pipelines earlier this year, while non-Opec Russia was yesterday revealed to have pumped a record 11 million barrels last week.