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Wednesday 29.03.2017 | Name days: Agija, Aldonis

Nordea: oil prices have stabilized after the failure of Doha Agreement

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The meeting of OPEC and non-OPEC oil producer, which took place Sunday, 17 April, failed to come to any agreements in regards to the possible reduction of oil production volumes.

Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU«Considering that most oil producers continued production in January at nearly full output, a freeze on production volumes would have had an insignificant impact on in a medium-term perspective. Nevertheless, the only two countries with the capability to significantly increase oil production volumes were Saudi Arabia and Iran. The agreement would have had a major influence on Iran,» – comments Nordea Bank’s economic expert Gints Belevics.

According to him, by not attending the meeting, Iran has sent a clear message – it is not prepared to limit its growing production volume. Seeing as how markets were opened on Monday, a price drop of 5% was experienced. Nevertheless, oil prices returned to their initial levels shortly after.

«The influence of unsuccessful talks on production freezing in Doha was limited partially because this measure would not have had any major impact to begin with. The second factor was definitely the workers’ strike in Kuwait, which took place at the same time as the signing process of the aforementioned document. It is worth mentioning that Kuwait is the fourth largest oil producer in OPEC that has reduced production output by 1.7 million barrels of oil per day, which is a significant amount,» – explains the bank’s expert.

«Saudi Arabia is currently the leading oil exporter that is capable of significantly increasing the volume of end products if there is sufficient demand. Alongside economic growth, the oil market is gradually coming close to achieving smaller surplus, which is now more clearly reflected in oil market outlooks and prices. With that, we have to be prepared for a gradual return of inflation. The next year may turn out differently,» – believes Belevics.

«Saudi Arabia is clearly not prepared to refuse the market strategy agreed upon at the November 2014 meeting of OPEC without Iran’s involvement. Iran will not sign any agreements to limit production volumes before the volumes reach a level noted before the application of sanctions. OPEC may continue drowning the market with cheap oil, hoping to push more expensive producers like USA, Russia and Norway out of the market. This process will likely turn out longer and more painful than expected. It could also mean another price war round for Iran, Iraq, Russia and Saudi Arabia,» – says Nordea Bank’s expert.

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