Investors are hearing quite a lot of talk about an OPEC oil production freeze but can they trust what they hear?
Algeria’s new energy minister, Noureddine Bouterfa, confidently said on Monday that if next week’s talks at the International Energy Forum in his native Algeria go well, then a follow up OPEC meeting could be scheduled before November 4 to head toward a freeze. He also believes a freeze could balance the oil market for at least 6 months. On Tuesday, Bouterfa went even further and suggested that the informal OPEC meeting planned for September 28 may turn into a formal meeting at which he will suggest that OPEC producers cut crude oil supplies by one million barrels a day.
Venezuelan President Nicolas Maduro echoed Bouterfa’s sentiment when he addressed the media following the Non-Aligned Movement summit on Sunday. He said that an OPEC—Non-OPEC deal to stabilize the oil market is “close.”
Khalid Al-Falih, Saudi Arabia’s minister of energy and industry, center, arrives for the 169th Organization of Petroleum Exporting Countries (OPEC) conference in Vienna, Austria, on Thursday, June 2, 2016. Photographer: Akos Stiller/Bloomberg
However, investors should remember that these exciting claims do not mean much coming from Algeria and Venezuela. Neither of these countries has any meaningful muscle within the OPEC organization. Venezuela cannot even feed the workers who pump its dwindling production and Algeria holds only 1% of OPEC’s total oil reserves. This is posturing and bravado and especially immaterial in light of recent comments from Iran, Libya and OPEC’s Secretary General.
Iran has been steadily increasing production since sanctions ended several months ago and claims it should be exempt from any production freeze. Do not be confused by President Rouhani’s recent remarks in which he said that Iran “welcomes any move aimed at market stability and improvement of oil prices based on justice, fairness and fair quota of all the oil producers.” In Iran’s view of the situation, stabilizing the oil market does not include an Iranian production freeze or cut. Iran believes it deserves to produce while others cut so that it can regain its former place in OPEC’s production totem pole. Yet other countries, like Saudi Arabia, are not about to agree to any freeze without equal sacrifice from Iran.
Source: Forbes
