TODAY.AZ / Business

Lack of oil freeze agreement forces supply retreat

21 April 2016 [12:10] - TODAY.AZ

Lower oil prices in the short?term will encourage lower production in many countries including the US, according to the analysts of the Energy Security Analysis (ESAI), which is the leading US-based independent research firm.

Allowing the fundamentals to play out may actually reduce the surplus faster, ESAI said in a report obtained by Trend.

Oil producers on April 17 in Doha failed to reach a deal to freeze oil output. The talks collapsed after Saudi Arabia surprised the group by reasserting a demand that Iran also agrees to cap its oil production.

Freezing production at end-January production levels, but with Iran and Libya on the sidelines, was going to have little to no impact on the fundamentals, ESAI report said.

All of the 18 producing countries, except perhaps Saudi Arabia (and of course Iran) are producing and selling all that they can. A production freeze by this group, therefore, would not have markedly reduced the surplus, but it would have temporarily raised crude oil prices, according to the report.

OPEC oil production in March increased by 15,000 barrels per day to 32.25 million barrels per day, according to OPEC's April Oil market Report.

Iran's oil production, according to the report, in March increased by 139,000 barrels per day to 3.291 million barrels per day.

Oil production in Saudi Arabia in March remained stable at 10.12 million barrels per day.

As prices rose in recent weeks, oddly anticipating a market-lifting agreement in Doha, Brent and even WTI came close to the price level that we believe helps U.S. shale output, analysts said in a report.

Prices in the mid $40s (WTI got to $41) are akin to throwing shale producers a life preserver in heavy seas. It is not clear that U.S. producers could expand production at $45 WTI, but certainly a return to the mid $40s would temper the production decline in the U.S, according to the report.

If oil producers truly want higher prices, then freezing production at this moment in time would do little to help their cause because it would support prices and marginally help U.S. crude output while doing little to eliminate the surplus, analysts believe.

The seasonal increase in crude oil demand over the next couple of months will lift prices from the post-meeting floor we are likely to hit in coming days, they said.

If prices rise too fast, then the gradual drawdown of the surplus, timed to start in the second half of 2016, according to the ESAI Energy Global Oil Balance, could slow down.

A decision to freeze production would have supported oil prices more quickly, whether warranted or not, and slowed down the reduction in the surplus by even more, ESAI report said.

 /By Trend/

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