As the oil summit in Qatar’s capital of Doha approaches, questions are swirling. Will a production freeze mean anything, when global oversupply is already growing at 1.5 million barrels every day? Can an agreement be reached without Iran? Will oil producers not attending the Doha conference negate the effects of any agreement? Can any agreement be reached at all at this oil conference ?
But one question that has been surprisingly tricky to pin down is, “Which nations are attending the Doha oil meeting?”
Nations Attending The Doha Oil Summit
According to the Qatari oil ministry, this is the list of nations attending the oil summit In Doha (in no particular order):
- Saudi Arabia*
- United Arab Emirates (UAE)*
- Qatar* (host)
- Iran* (observer)
- Mexico (observer)
* OPEC members
Not Attending Doha Conference:
Among the oil producers absent from the negotiating table in Qatar are several heavy hitters in the oil market:
- United States
Canada, the United States, and Mexico (who is in Doha, but just as an observer) together account for one third of global oil production. This is a significant portion of total crude output that will not be bound by any agreement coming out of Qatar
What Does The Doha Oil Summit Expect To Accomplish?
The stated goal of oil talks in Qatar are to agree upon a freeze in crude production at January levels. While many oil traders have applauded this effort, others realize that most of the nations at the meeting were already pumping at record levels in January. A freeze at those levels would still mean 1.5 million extra barrels of oil would be added to global oil storage every day.
Therefore, any agreement at the Doha oil summit would only have temporary, psychological effects on oil prices. A spike from speculative trading would quickly pass as the market refocused on fundamental demand/supply issues.
Hopes among some in the industry is that successful talks in Qatar, even if they don’t really do anything about the growing oil glut, will at least provide a framework for eventual production cuts.
What Could Derail Any Agreement Reached At Doha?
The most likely event to scuttle any oil production agreement is the one that has doomed all previous ones: cheating. The dire economic straits of the Venezuelan and Iraqi economies practically guarantees they both will do everything they can to pump as much crude as they can. Russia has never really NOT cheated on any production agreement with OPEC, and its current economic hardships increase the chances of it cheating.
Iran has made it abundantly clear that they will be ramping production as rapidly as possible, until they return to pre-sanctions levels. Their refusal to join a production freeze agreement almost scuttled talks before they began.
Brazil is in both economic and political turmoil, with the president fighting impeachment proceedings, and the country mired in the deepest recession in 25 years. The economy has been hammered by an ever-widening corruption scandal focusing on giant state-owned oil company Petrobras. Cleaning up Petrobras management and getting oil flowing as fast as possible is a national priority for fighting the recession. Again, this is growing production that is not constrained by any oil agreement forged in Doha.
Norway is looking to replace depleted North Sea oilfields that have led to oil production dropping by half since 2000. While opening new areas for drilling is not an immediate threat to increase global oil production, prices may rise enough that shut down North Sea operations would be brought bank online.
A resilient US shale oil sector will also spring back to life if oil prices rise to around $50 a barrel. This ability to quickly react to market conditions will put an effective cap on crude prices.
Events In Oil Market’s Favor
It’s not all doom and gloom, though. Shale output in the US has begun dropping sharply, and the number of fracking companies continues to shrink. In fact, falling oil production in the US will probably have more effect on global oil prices than anything that happens in Qatar this weekend.
In Norway, smaller coalition partners of both the government and the opposition have put up roadblocks to prevent Arctic drilling. Any resolution of the stalemate won’t occur until 2017, and it will take 5-10 years after that for the oil to start flowing.
Continued US sanctions are choking off Iranian efforts to regain market share, and hindering modernization of Iranian oil infrastructure. Since Iran is still on the list of state sponsors of terrorism (hello, Hezbollah) any company doing business with them will be locked out of the US financial system. Even without the sanctions, many companies remember losing everything to the Ayatollahs in 1979. After the overthrow of the Shah, all Western companies were nationalized or shut down.
And finally, the most likely event: If a production freeze at January’s levels is actually negotiated, output at that those levels may be unsustainable for everyone but Saudi Arabia. We could see everyone, including Russia, pumping under quota by this autumn, which would practically be a production cut.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product