Will Saudi Arabia and Iran be able to reach an output compromise?
The oil market suffered some fresh hits from the Organization of the Petroleum Exporting Countries on Friday, as news reports blasted an abundant supply of comments from oil officials ahead of a key oil-producer meeting next week. Members of OPEC, non-OPEC Russia and other oil producers will meet Sept. 28 on the sidelines of the International Energy Forum in Algeria and it could end just like the summit in Doha did last spring—without an agreement to limit production—as producers haggle over who makes the first move.
As was the case ahead of the April meeting in Doha, Qatar, comments from big oil producers have fed volatility in the market, with large price swings for crude oil in either direction becoming the norm since early August, when OPEC announced plans for the gathering.
Oil-related stocks in Asia took a beating amid the OPEC uncertainties. In Japan, oil explorer fell 2.1%, while in Hong Kong Chinese oil giant Sinopec -2.37% and offshore oil producer Cnooc fell –1.5%. I expect the price to stay volatile and most likely any decision would be delayed for November. While the cartel may agree to production cuts, OPEC members and Russia have substantial issues to work out before making a deal to limit production.
Meanwhile in Japan, the market continues to digest last week’s monetary-policy news from the Bank of Japan and the Federal Reserve. BOJ Gov. Haruhiko Kuroda plans to speak later Monday, and is set to make the case for the central bank’s decision to target an interest rate of zero for 10-year government bonds. Iran’s determination to bring output back up to pre-sanctions levels was the big reason why an output-freeze deal fell through in April. Iran will still want 4 million barrels a day, which is above current production where production has been disrupted by unrest and violence, will be willing to accept current production as a ceiling.
J. Mason ♦