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Scepticism on Doha agreement grows

Published Monday, April 4th, 2016

“Those countries which have openly supported this approach are producing around 75 percent out of global (oil) export volumes. My point is that, in practice, this is enough to agree.” These were the words of Russian Energy Minister, Alexander Novak, on February 21, five days after Russia and Saudi Arabia had agreed to freeze output at the January levels. That time the Russian oil minister also foresaw the production deal to be implemented by March 1.

A lot has changed since then. The meeting is now expected to take place in less than two weeks on April 17. Oil prices rallied more than $10/bbl on bullish expectations of the deal but they are now $4-$5/bbl below the highs achieved around two weeks ago. Russia’s oil output that was at 10.46 mbpd in January rose to 10.88 mbpd the following month and to a record high of 10.91 mbpd in March, according to official Russian data. Such a rise is bad news for those who expect a bullish outcome from the meeting.

The Saudi stance is equally disheartening. The Kingdom’s oil minister, Ali al-Naimi, made it clear in his speech during the CERA week in Houston on February 24 that any freeze would be the beginning of a process and current high inventories will decline in “due time”. He also made it clear the production cut will not happen because “not many countries are going to deliver. Even if they say that they will cut production they will not do it. There is no sense in wasting our time seeking production cuts. They will not happen.”

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Posted by Tamas Varga

Tamas Varga has been in the oil industry since 1992 and with PVM for 18 years. During his time in the industry he has gathered a range of experience in the oil markets. At PVM Tamas is in charge of data collection and analysis.