Oil prices enjoyed a bump last week,…thanks in part to a weakened dollar and some geopolitical tensions in the Persian Gulf. But a large factor in the recent rally has been the return of a possible OPEC production freeze, a subject that was last tossed around before the organization’s much-publicized, and ultimately unproductive, meeting in Doha last April. The likelihood of a freeze sent markets up on Thursday, though some less-than-confident comments from the Saudi oil minister sent them dropping back on Friday.
Whether a freeze occurs or not is likely to be the trending gossip among speculators for the next month, at a time when such talk is exerting greater-than-average pull on the crude price. But a question worth asking is whether a freeze is even possible, given the state of OPEC and the increasingly divergent interests of its fourteen members.
This new attempt at a production freeze comes as Saudi Arabia, OPEC’s largest producer and de facto leader, reaches a new production record of 10.67 million barrels, more than 400,000 more than when the last freeze was discussed, while its oil revenues continue to plummet. OPEC profits have fallen 55 percent since 2014, according to the EIA. Ecuador, Kuwait and other Gulf producers want the price to recover past $50 a barrel. If a production freeze is on the cards, it will be discussed in late September during an informal meeting of the OPEC states at the International Energy Forum in Algeria.
Iraq and Iran, OPEC’s number two and three producers, respectively, have offered tacit acceptance of a production freeze, with important caveats. S
Conclusion…So, if there is a freeze, where will production be “frozen,” exactly? What is possible, however, is that continued talk of a freeze will continue to exert influence over the market, which has see-sawed between bearish and bullish for weeks now.
Reference: Is An Oil Production Freeze Even Remotely Possible, Oil Price, by Gregory Brew, August 29, 2016