Oil: Expectations for Doha May be Inflated – BBH
Research Team at BBH, suggests that the weekend meeting between many
OPEC and non-OPEC producers has helped spur the recent gains in the
price of oil and they are concerned that market may be getting ahead of
itself.
Key Quotes
“First, the freeze
in output that had previously been agreed by Russia, Saudi Arabia, and a
few other countries was conditional on participation by Iran. Our
reading is that Saudi Arabia was cognizant of this, but providing the
condition did a couple of things for it. It deflected the blame for low
oil prices away from it and toward its rival Iran. It also pushed a
wedge between Iran and Russia.
Second, more many producers, a
freeze is not really a concession. Many producers are operating near
capacity. They have stepped up output to make up for the lower price.
This is a rational strategy under some conditions.
Third, there
was an unintended disruption in supply in Iraq and Nigeria which are
being resolved. Iraqi output reportedly rose 2% in March. Reports
indicate that Saudi Arabia and Russia also increased their output ahead
of the tentative freeze agreement in February and afterward. This too
seems to be a rational strategy under certain conditions.
Fourth,
some OPEC countries are looking to expand capacity. Kuwait, for
example, reportedly will soon seek assistance to access undersea oil
reserves for the first time. Projections suggest it would boost
capacity by 5% or more.”
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