Oil prices edged higher on Wednesday as talks were under way between Opec producers in Algeria, that could pave the way for a deal to eventually curb production and bring to an end a two-year downturn in prices.
While Saudi Arabia and Iran, two of Opec’s largest and most influential members, have sought to damp prospects for any deal this week, their differences are narrowing and talks in the Algerian capital are continuing, ministers have said.
Mohammed Bin Saleh Al-Sada, Qatar’s energy minister and president of Opec said ahead of the meeting that supply and demand was taking longer to balance, keeping the oil market under pressure.
“It is evident that there is now a greater degree of urgency about ensuring the market returns to balance as quickly as possible,” he said just before formal discussions began. “We need to look at market stabilisation measures aimed at reducing the length of the downturn and lessening volatility.”
Noureddine Boutarfa, Algeria’s energy minister, made a renewed call for co-ordinated action. “Can we wait for market forces to eventually rebalance the market?”
Saudi Arabia’s powerful energy minister offered a more conciliatory tone this week conceding that Iran, Nigeria and Libya — which have variously lost output because of violence in their countries or sanctions — would not be as tightly bound by any deal to cap output.
That marks a shift in tone for Saudi Arabia, which has previously made its involvement in any deal to freeze or cut output conditional on the participation of its fierce regional rival Iran. The kingdom is now saying it is assessing various scenarios and would bear the brunt of a co-ordinated cut to production of 1m barrels a day.
Iranian oil minister Bijan Zanganeh said Opec members were still trying to reach a deal under which his country could agree to curtail its production at close to 4m b/d. It is currently pumping around 3.6m b/d, according to analyst estimates.
Tehran, which is emerging from years of Western sanctions, has previously said that it is not willing to freeze output until it had regained more than 4m b/d of production and its lost market share.
That still leaves a gap of around 400,000 b/d between their respective positions, which may be too much to bridge today, Opec delegates say. However, it could lay the groundwork for a deal later in the year, possibly at the group’s next official meeting in November.
With the global oil glut likely persist into 2017, a deal is crucial to putting a floor under prices and supporting the budgets of cash-strapped producer nations.
Brent crude, the global benchmark, rose 16 cents to $46.13 a barrel as talks got under way. In earlier trading Brent reached a high of $47.19. The price fell more than 3 per cent drop on Tuesday.
“The art will be to try and come up with a ‘communique’ that hints of a credible production freeze in the near future,” said David Hufton at London-based broker PVM. Any announcement has to be one that “keeps both bulls and bears at bay”.
The latest push for a deal signals greater flexibility than at any point in the last two years, say analysts. A previous attempt to limit production in April failed, scuttled by Saudi Arabia, which said it would not comply without Iran’s involvement.
As the oil market inches slowly towards balance, producer countries are having to adjust to prices that are struggling to rise above $50 a barrel.
The strain caused by lower prices is clearly evident, even in Saudi Arabia. The kingdom has racked up a record budget deficit of nearly $100bn and this week the government announced a 20 per cent cut to ministers’ salaries and bonuses for public sector employees in a drive to find new savings.
Iran also depends heavily on oil but is suffering less from the halving in crude prices since mid-2014. Since the lifting of sanctions against its oil industry Iran has ramped up production and exports, which it says has provided a buffer of sorts from the oil market downturn.
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