In the early Sunday, rumour mill was running at top speed announcing oil production freeze, before a meeting between OPEC and non-OPEC oil producers in Doha could even start. Everyone who stands to benefit from higher crude oil price was rejoicing. The rumour was started after a Russian news agency, Tass, leaked a draft agreement of the “oil freeze”.

Apparently, Azerbaijan’s Energy Minister Natiq Aliyev was quoted as early as Saturday, hours before the summit in Qatar, saying – “The states gathering in Doha have reached a conclusion that for normalizing the oil price they agreed to freeze the output at the level of January 2016 until October.”

 

It was a hoax, of course, simply because Iran wasn’t even bothered to attend the meeting. However, there were tons of people who have somehow gotten themselves scammed. The draft didn’t specify an actual enforcement mechanism, a huge giveaway, not to mention that the supposed oil freeze will be based on “gentlemen agreement”.

Screw the agreement because those Arabs are not known to upholding any gentlemen agreement. What is gentlemen to them, including the Russian, is for every country attending such meeting to pump like mad at their backyard before the ink on the agreement, assuming there was one to begin with, could dry.

 

That’s right – even within OPEC members, they cheat each other and would fight to be the first one to cheat before everyone else. And they’re pretty proud of cheating. But for others who didn’t attend the Doha summit to actually believe their OPEC brothers would agree to freeze the production for the greater good of oil producing countries, they’re too naive.

Saudi Arabia has repetitively said that without Iran’s signature, the kingdom will not sign. It’s a simple “You Jump, I Jump” business deal to the Saudi. The Saudi Deputy Crown Prince Mohammed bin Salman has already confirmed no production freeze unless all other major producers, including Iran, also freezes.

 

But Iran had already made it know they wouldn’t attend prior to the Doha summit so how could one believe there would be an oil freeze at all? Turns out, the Iran decided to play out Saudi Arabia with a promise of sending a low ranking officer instead of its Oil Minister Bijan Namdar Zangeneh, but ended up sending none (*grin*).

Ahead of Sunday’s meeting, Iran’s production has already surpassed 3.5 million barrels of oil a day, with hopes of increasing to 4 million by April 2017. As a result of Iran’s absent, the meeting of 18 oil-producing nations was reduced to hours of debate and resembled the dysfunction of an unsuccessful meeting of the OPEC in December that sent oil prices tumbling.

 

Thereafter, oil prices tumbled more than 5% during Asian hours when market opens on Monday – Crude Oil WTI is currently trading at US$38.36 while Crude Oil Brent at US$41.12. In February, Russia, Saudi Arabia, Qatar and Venezuela agreed to freeze output if other producers would join them. What they had meant was actually Iran and nobody else.

Iran has consistently maintained that it would not consider freezing or reducing production level until it regained its market share, following the lifting of the international sanctions in January. And Saudi is doing the same too – to maintain its market share and prevent rival Iran from eating up the market share at the same time.

 

The latest setback means the crude oil prices which had risen as much as 55% since February after hitting as low as US$27.88 a barrel in January, will have tough time going into the US$50 a barrel region. Billionaire investor Wilbur Ross, chairman and CEO of private equity firm WL Ross & Co, now thinks the price would be between US$35 and the low US$40s in the near future.

The OPEC’s (Organization of the Petroleum Exporting Countries) next meeting is in June but speculators, investors, traders and analysts can safely write off any production freeze, let alone a cut, after the weekend’s disastrous meeting in Doha. Like it or not, Iran is the kingmaker and only they can boost the crude oil prices, for now.

 

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April 18th, 2016 by financetwitter

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