Oil: Expectations for Doha May be Inflated – BBH

Oil: Expectations for Doha May be Inflated – BBH

14 April 2016, 06:33
Roberto Jacobs

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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