Sunday, April 17, 2016

World Waits with Bated Breath - Doha Summit Outcome

Will they, will they not? That is the moot question that investors, especially oil traders are asking around the globe. And 'They' are the major oil producing countries. These countries will go into a huddle to decide whether they should announce a production freeze on crude output so as to restrain the supply of global oil or not. With supply side contained, these oil producing nations expect oil prices to  increase.

In Doha Summit there will be 12 OPEC nations participating, with Libya abstaining. Iran will attend but will  send a delegate instead of its Oil Minister.. Others attending are Saudi Arabia, Iraq, UAE, Kuwait, Angola, Algeria, Equador, Indonesia, Qatar, KSA, Venezuela

Seven non-OPEC countries have been invited. Out of these seven, Russia, Bahrain and Oman are sure to attend. Mexico will send its observer. It is not clear whether invitees Azerbaijan, Norway and Kazhakstan will attend or not.

That this Summit is bound to fail has already been discussed in my previous post How will this Sunday be - Black or Grey?. But some important aspects which need to be kept in mind are mentioned below :-

  1. This exercise of Doha Summit for Production Freeze of Oil output was a ploy by Saudi Arabia to stop Iran from hiking production. 
  2. Iran has called the bluff of Saudis by insisting that it wants to ramp up production till pre-sanction level of 4 million barrels per day is achieved
  3. Saudis have cleared their stance of not signing any treaty without others, specially Iran agreeing..
  4. Iraq cannot stop production hike as its economy is in shambles and needs extra money for its army to carry on its campaign against Islamic State.
  5. Saudi Prince has threatened to increase production by 1 million barrels per day, if there is no production freeze.
  6. Most countries are already pumping out oil at their maximum capacity, except Iran and Iraq. So production freeze summit is just an eye wash.
Be that as it may, the very news of no production freeze coming out of the summit will make oil to crash to 35 USD per barrel over the coming week. At that level oil should find support again, since some sense will prevail over oil traders that Oil Production Freeze Summit at Doha was just a charade, and nothing more.