Tuesday, 12 April 2016

Is pre Doha meeting oil rally sustainable?

On Tuesday oil breached US$43 a barrel. Brent was up 50 cents at $43.33 a barrel at 0842 GMT and earlier in the session reached a 2016 high of $43.53. WTI gained 39 cents to $40.75 a barrel.

The price movement is being attributed to the hopes being attached to an upcoming meeting of oil producers. The overwhelming perception is that the producers will agree on the measures to tackle the prevailing glut. The perception is also supported by a weak U.S. dollar and further signs of improving oil demand in China.

Many members of OPEC plus outside producers such as Russia are meeting in Doha, Qatar, on Sunday to discuss freezing output. However, two of the largest oil producing countries i.e. the US and Iran will not be taking any part in the deliberations.

As I have in my previous blogs the three largest oil producers/exporters Saudi Arabia, United States and Russia are not willing to contain output. They are insisting that Iran must also freeze output at January 2016 level. The logic is totally illogical.

In fact all the oil producing countries have succeeded in increasing their output after the imposition of economic sanctions on Iran. Therefore, Iran’s point carries weight that let it first regain its lost share and only then it would be willing to talk about containing its output.

There are growing fears that the upcoming meeting will prove a non-event as the three largest oil producers/exporters will not be ready to relinquish their market share to Iran.


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