A combination of factors including a weak dollar and talk of a supply freeze have pushed oil prices up past $43 a barrel; the highest they’ve been all year.
Igor Sechin, head of Russian state-backed oil company Rosneft, spoke at the Financial Times Commodities Global Summit this week, claiming that the steady fall in prices we’ve seen of late will come to an end.
“The oil price is growing,” he told the summit, “I think everyone is expecting the successful outcome of our work.”
He spoke not just of the likelihood that prices will rise, but also of the importance that they do.
“We will need higher price levels than $45 or even $50 a barrel.”
This all comes ahead of Sunday’s meeting in Doha between several OPEC members including Saudi Arabia, and outsider producers including Russia and Venezuela. They will be discussing the potential need for a deal to freeze output levels in order to prop up the industry and prevent prices from sliding further.
Other important figures, including Falah Alamri, director of the Iraqi state-owned oil company, have spoken at the FT summit ahead of the meeting in Doha talking of the need for an output freeze.
He said: “They should do this deal [referring to an agreement to freeze production] as this is the only way to support the oil price. Everybody needs it and Iraq supports this deal.”
Both Sechin and Alamri pointed to falling output from the US as a sign of tightening in the market generally and so making the timing perfect for a deal on output levels.
Alamri said: “Demand is increasing and supply is decreasing as American shale oil especially is falling. The timing is right. A deal would now be effective.”
Other factors driving up prices include increasing demand from China due to growing numbers of vehicle sales.
However, while benchmark Brent Crude has risen from its 12 year low of $27 per barrel in January to $43.30 now, Goldman Sachs have warned that this trend is not guaranteed to continue, regardless of the outcome of the meeting in Doha on Sunday.
In fact, the investment bank said, “we see greater odds that the Doha meeting delivers a bearish catalyst for oil prices”.
They said that while “the market has taken comfort in the production freeze discussion and the declining US rig count, we continue to believe that the balancing of the oil market is still far from secured”.
They went on: “We see risks that even a production agreement could be followed by sequentially rising OPEC production given the multitude of potential sources of production growth.”
One issue has been Iran’s refusal to accept terms of any deal involving freezing output thus far, claiming that they will not do so until they reach a target production rate of four million barrels a day.
“Ultimately,” Goldman Sachs said, “we believe the biggest hurdle to reaching any meaningful agreement will be the conflicting Saudi and Iranian stances, with Iran repeatedly stating that it would continue to grow production and regain its market share and its participation to the Doha meeting still uncertain.”
Iran wishes to recover from recently lifted sanctions before they agree to anything. Saudi deputy crown prince Mohammed bin Salman, once of the leading political forces in the Arab nation, has previously said that without Iran’s agreement, Saudi Arabia are unlikely to accept any deal pertaining to freezing output levels.
Speaking to Bloomberg, bin Salman said: “If all countries agree to freeze production, we’re ready, [but] if there is anyone that decides to raise their production, then we will not reject any opportunity that knocks on our door.”
Despite bin Salman’s statements, the Financial Times reports that “a senior OPEC delegate said last month that the compliance of Saudi Arabia…was not contingent on Iran”.
