That was never going to happen, with Zanganeh opining ahead of the meeting that OPEC and non-OPEC producers should accept the “reality of Iran’s return to the oil market.”
“If Iran freezes its oil production… it cannot benefit from the lifting of sanctions,” he added.
In any case, only a freeze and not a real-terms cut was on the table. It is highly questionable how such a freeze – with Saudi, Iraqi and Russian production at record levels – would have meaningfully supported the oil price in the first place.
In my opinion, the impact would have been limited and that too for a very short period of time before a glut influenced reversion to the norm. For that matter, given that we still have 1.75-2.5 million barrels per day of surplus oil coming to the market, even a highly improbable real-terms cut of 1 million bpd would not have made much difference.
Putting on a brave face, Qatar’s oil minister Mohammed Saleh Abdulla Al Sada said the group “needs more time” to work on the finer points of a deal to freeze production, but added that “improved fundamentals” meant an immediate agreement was not necessary in any case.
In short, it pushes the crude can further down the road to OPEC’s meeting of ministers in June. However, with Iran’s position unlikely to alter, there is a recognition that OPEC cannot do much.
Commenting on Iran and its absence at the negotiating table, Al Sada said, “We respect their position and through further consultation, we don’t know how their future will unroll. It was a sovereign decision by Iran. A freeze would definitely be more effective if OPEC and non-OPEC producers cooperated.”
To be honest, most in the market, including myself, had been expecting some sort of a face saving public relations exercise packaged as a lukewarm agreement to freeze production, with of course no real way of actually policing it.
However, the collapse of the talks illustrates how foolish the idea is in the first place and that key participants are in full self-preservation mode at the moment. Furthermore, even if the assembled countries had agreed to freeze output, US and Canadian producers were neither at the table nor are ever likely to be.
A bearish period is now likely to follow the false bull run before the next OPEC meeting. Expect more volatility with oil futures staring at another round of short calls. Should a price-floor of $35 per barrel stand, it is more than adequate for major US shale players to carry on regardless.
Some of course would remain in denial as US shale players continue to weather the storm. Take Venezuelan President Nicolas Maduro, who accused the US government last week of applying “war-like” pressure to prevent an agreement between oil producers.
“You can’t imagine all the pressure that is coming from Washington to ensure the failure of the efforts we have made during the last year to create a common strategy among OPEC and non-OPEC producers to stabilize the market and prices. These are almost war-like pressure on governments, on heads of state,” he said during his weekly televised broadcast.
The situation in the oil market bottles down US policymakers having a “fatal obsession” with Russia, OPEC and Venezuela’s left leaning government, Maduro concluded.
There is such a thing as oil market correction and rebalancing, which is unlikely to occur before the first quarter of 2017. However, for beleaguered oil producers like Venezuela, that’s too long a wait, and too painful a concept to grasp. Expect more selloffs in the oil market and extra hot air in producers’ circles between now and June!
