We don’t see the oil market re-balancing until late 2017 - OPEC

All eyes are on Algeria this week where the International Energy Forum is being held. But instead of the conference itself, the global oil markets are anxiously awaiting the developments of an informal meeting to be held on the sidelines of the Forum between OPEC and non-OPEC officials.


At the time of this writing, no deal had been announced, although there are some unconfirmed reports that Iran and Saudi Arabia are considering some sort of limit on production. The proposal would call for Saudi Arabia cutting output by several hundred thousand barrels per day if Iran froze production at 3.7 million barrels per day.

Oil prices surged on Monday on hopes of a deal, jumping more than 2 percent. However, in early trading on Tuesday, WTI and Brent were back down by more than 2 percent as expectations of an agreement began to fade. The result may not be known until Wednesday, but comments from Iran’s oil minister, saying that the talks were simply “consultative,” seemed to dash hopes of any specific agreement. For now, it appears that if anything is agreed to, it would only be the outlines of a deal, which would make the official Nov. 30 summit in Vienna much more important for finalizing the specifics.

Saudi Arabia appears more desperate than Iran. For years, Iran wanted higher oil prices while Saudi Arabia was satisfied letting other producers sweat. But after two years of low oil prices, Saudi Arabia is under serious fiscal pressure, an unfamiliar predicament in Riyadh. Saudi Arabia just announced that it would cut its ministers’ salaries by 20 percent and slash benefits for government employees as the country pursues deeper belt tightening. Meanwhile, Iran is seeing a resurgence in its economy after the lifting of international sanctions and the return of supply. Saudi Arabia has a massive budget hole equivalent to 13.5 percent of GDP, while Iran’s deficit will only reach 2.5 percent of GDP. In other words, Saudi Arabia seems to be more desperate than Iran for higher oil prices.

IEA reiterates bearish forecast. On the sidelines of the energy conference in Algiers, IEA’s executive director Fatih Birol said that the global surplus in crude oil will persist until late 2017. Unless there is “major intervention,” Birol said, referring to OPEC production cuts, "We don’t see the oil market re-balancing until late 2017.” He sounded especially bearish on the demand side of the equation, “demand is weak, weaker than many of us thought…about 0.8 million barrels per day…less than 1 million barrels per day.” He went on to add that “supply is coming strongly, especially from Middle East countries. And the stocks are huge. As a result of that, we have lower oil prices with huge implications for the next few years.