Wednesday is a day of contradictions as officials from Russia and Saudi Arabia are stating complete opposites in response to Tuesday's news, by Russian Interfax news agency, of the world’s two largest oil producers supposedly coming to terms over the production freeze regardless of if Iran is on board.
As those following the news of the oil industry no doubt remember, Iran has bluntly stated that it will not participate in any deals to cap output until the country’s production is at 4 million barrels per day (mb/d). Saudi Arabia, whose main concern is keeping its market share intact, responded that there could be no freeze deal without Iran. This chain of events has greatly undermined the probability that the upcoming meeting of major oil producers in Qatar on Sunday can bring forward a solution that will change the flow of the oil market for the better. Related: Why India Matters More For Oil Than China
Nonetheless, on Tuesday, oil prices saw a rise to their 5-month highs with both benchmarks breaking above their 200-day moving average, despite the lack of commentary from either side.
Comments came much later, on Wednesday, with the Russian Energy Ministry confirming that its head – Alexander Novak, has conducted talks with his Saudi counterpart. Russian TASS information agency reported on this, however, the only comment from the ministry’s representative was “We confirm the fact that negotiations took place.” A rather vague statement.
Saudi Arabia’s Oil Minister Ali Al-Naimi, on the other hand, was more specific. The UAE website gulfnews.com is referring to the Saudi state-owned al-Hayat newspaper, according to which Al-Naimi urged everyone to forget about his country cutting production. Related: End Of An Era: Peabody Declares Bankruptcy
In the meantime, OPEC has lowered its forecast of the oil demand increase for 2016 due to a decrease in consumption. The Organization believes that the daily increase of demand will be 50,000 barrels less than previously expected and will amount to 1.2 mb/d. It also needs to be noted that the forecast could be lowered further.
According to the OPEC report, if the volumes of the global crude oil production remain as they were in March, the oversupply in 2016 will amount to 790,000 barrels a day. It was earlier estimated that this figure would be at 760,000 barrels daily.
The U.S. crude oil stocks regained last week the 4.9 million barrels that they had lost the week before and added another 1.7 million on top of that for a total 6.6 million barrels, according to the EIA. Related: Tesla And Other Tech Giants Scramble For Lithium As Prices Double
Volatility was tremendous on Wednesday with prices continuing their forward march and WTI breaking through the $42 per barrel barrier, testing the $42.40 resistance before noon, but falling back below $42 to around $41.57 by 12:30 pm. Brent experienced a similar situation, reaching as high as $44.90 per barrel and retreating to the $44.08 mark. Wednesday ended on a downside note with both benchmarks closing below their open at $41.48 for WTI and $43.79 for Brent. As of 11:00 am (EST) Thursday, April 14, oil prices were back on the positive trend $41.84 and $44.31 and rising.
All things considered, the outlook of the Doha meeting remains grim. With each side looking out for itself, the sides will, most likely, fail to come to a conclusion as they have proven to do in the past. If no agreement is found on Sunday, oil prices can be expected to plummet, erasing a good portion of what they fought so hard to restore. However, if an agreement to freeze output can, indeed, be reached among the producers, which, for the time being, seems unlikely, prices will receive solid footing to stand on as well as prerequisite for further growth.
Donald Levit via EconomicCalendar.com
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