“Yes, we continue tomorrow with non-OPEC but there was no complete agreement today since Iran refuses to freeze production.”
“We didn’t finish all. We are looking to the next meeting on November 25 to finalise individual quotas.”
“There is no agreement yet, all agree except Iran,”
“It is getting complicated.”
“Every day there is a new issue coming up.”
Those are some of the headlines out of OPEC, who met in Vienna on Friday in an ill-fated attempt to hammer home the details of a production cut (or at the very least a production freeze) as the global deflationary supply glut and the incipient threat of US production coming back online at ~$55/bbl ensures prices remain stubbornly glued between $40-$50.
And, surprise! It’s not just Iran that wants an exemption – so too does Iraq and guess who controls Iraq? That’s right, the Shiites. In fact, Baghdad is essentially just a puppet for Tehran.
It’s a textbook example of the sectarian divide spilling over into oil markets and Russia’s decision to side with the Iranians hasn’t helped smooth things over with the gulf monarchies. Recall what I said back in June:
What should be abundantly clear here is that Saudi Arabia and Iran don’t care too much about what a handful of cash-flow negative US producers are or aren’t doing. Sorry. This is truly a case where geopolitical turmoil is driving oil lower, not higher.
For their part, Oman says it’s ready to cut a deal but don’t hold your breath, we likely won’t get anything definitive until the end of next month and even then the market is set up for disappointment.
Remember, “freezing” production really doesn’t mean much when everyone is already producing at record levels.
Finally, here’s a bit from SocGen on what amounts to an intractable stalemate:
The new supply and demand balances tell us that, without an OPEC cut, the rebalancing will progress much more slowly than previously expected, with an overall balanced global market next year — not stockdraws. This weaker outlook for global demand and non-OPEC supply means that the OPEC cut becomes that much more important to the fundamental and price outlook for 2017. If the OPEC cut is confirmed on 30 November, it could reinforce our current price outlook, depending on the details; however, if the agreement were to fall through, we would probably revise our price outlook downward.
