Oil prices hit a 2016 high this week on news that Russia and Saudi Arabia had reached a consensus ahead of the meeting. In recent weeks, Saudi officials said that it would only take part if Iran also complied. Iran has consistently said it will not participate in the agreement as it seeks to boost its production after years of sanctions against its oil industry. The Saudi oil minister has ruled out a production cut.
Oil prices have remained depressed as producers keep increasing output at a faster rate than demand growth.
- OPEC pumped 32.5 mbd in March, an increase of 2.5 mbd (+8%) since the oil price started to drop in June 2014. Iran has not added as many barrels as expected after sanctions were lifted, but output is up by nearly 0.4 mbd this year.
- Russian oil producers boosted output to a record 10.9 mbd in March, an increase of 0.4 mbd from June 2014
- US oil production continued to grow into the downturn reaching to a peak of 9.6 mbd in June 2015 (+1.2 mbd yoy). Only in February this year did production drop below year-ago levels. The decline is expected to speed up as producers face financial problems.
A year ago, the oversupply in the market was above 2 mbd. With the accelerating decline in US production and lower production than expected from Iran, the oversupply has been reduced to 1.5 mbd in 1Q this year. Record high stocks continue to build. Global demand growth is expected to slow from a very strong 1.8 mbd last year to 1.2 mbd this year.
A deal in Doha will not do much to remove the oversupply in the market, unless production is cut. Most producers run full speed, and current spare capacity is limited to Saudi Arabia. The bullish sentiment could, however, be strengthened depending on the outcome of the meeting.
Data from Reuters, EIA and IEA