The much ballyhooed unofficial OPEC meeting will be held this week and the markets are betting on nothing much happening – for the second time this year.
Yes, prices will fluctuate on every leak or breathlessly reported development at the unofficial meeting in Algiers on Wednesday night, Australian time, but little progress is seen.
Saudi Arabia started the hares running on Friday with a leak to Reuters that it is willing to cut output by 1 million barrels a day if Iran freezes its production at 3.6 million barrels a day and doesn’t push higher to its target of 4 million barrels a day.
That saw global prices lurch upwards, but they then quickly tumbled as it was seen as a negotiating tactic by the Saudis who fully understand the Iranians won’t be diverted from boosting output to 4 million barrels a day.
Three weeks ago, Russia and Saudi Arabia set off talk of a deal to freeze production at this meeting in Algiers of the International Energy Forum.
Those stories expanded to include the likes of Venezuela (broke and collapsing), Libya and Nigeria. But the latter seem to have fixed production hitches to varying degrees, while oil is flowing from Canada after repairs to the damage caused by the fires in May..
Now Russia seems to be talking out of both sides of its mouth – wanting a 5% production cut, and not wanting one, depending who the media talks to in the country’s energy establishment.
And a long feature in the Financial Times this week revealed the country’s biggest oil group is busy boosting drilling and production (by a rumoured 500,000 barrels a day) from its mature oil fields in Western Siberia, which is not the stuff of a production freeze.
So after the early run up, prices came back sharply on Friday night and ended 3% to 4% lower by the close of trading early Saturday morning, Sydney time. And there was a timely reminder of the ‘gorilla’ in the back of this meeting tonight – the US industry which is continuing to expand drilling.
In fact the weekly oil rig use data from Baker Hughes showed the US is on track to add the most number of oil rigs in a quarter since the crude price crash began in mid 2014.
Baker Hughes report showing that the number of active US oil rigs climbed 2 to 418 last week – the 12th week out of the last 13 that the number has increased. The number is now up 102 from the lows of late May and early June.
In London Brent crude futures settled down $US1.76, or 3.7% at $US45.89 a barrel. For the week, it rose just 0.3% because of gains earlier in the week.
In New York, West Texas Intermediate (WTI) crude futures fell $US1.84, or 4%, to settle at $44.48. On the week, WTI gained 3%.
Crude futures slumped after sources said Saudi Arabia did not expect a decision in Algeria where the Organization of the Petroleum Exporting Countries and other big oil producers were to convene for Sept 26-28 talks.
"The Algeria meeting is not a decision making meeting. It is for consultations,” a source familiar with Saudi oil officials’ thinking told Reuters. So it has gone from talk of some sort of deal on a production freeze, to just talk (or ‘consultations’).
The Alegers talks are OPEC’s second attempt for an agreement on production curbs, after a failed effort in May.
The market has been skeptical of OPEC’s commitment, though, as key members of the group, led by Saudi Arabia and Iran have been pumping at optimum levels to protect market share, and non-member Russia (and chief talker about ‘freeze’ talks), has followed suit.
