Ahead of continued discussions by the Organization of the Petroleum Exporting Countries (OPEC) regarding a planned freeze on output, oil prices steadied on Friday with investors remaining cautious.
Analysts are still wary of placing big bets amid the continued uncertainty over the plan to cap output in the OPEC member states leading to low market activity overall. Thanksgiving holiday in the U.S. also reduced action.
U.S. West Texas Intermediate (WTI) crude gained 6 cents to $48.02, while Brent crude futures rose 7 cents at $49.02 a barrel at 1420 GMT.
Preliminary agreements on the output cut were made at an unofficial gathering in Algiers two months ago, and OPEC next meets in its official capacity at the end of this month to further coordinate the freeze, potentially with the assistance of non-OPEC nation Russia.
The OPEC agreement could well turn into a global production freeze, and if that is the case, Russia could potentially revise down its oil production next year in the hope other non-OPEC nations would follow suit. The target would be around a 250,000-350,000 barrels per day (bpd) cut according to the country’s Energy Ministry.
Natig Aliyev, the Azerbaijani Energy Minister, was recently reported as saying he hoped OPEC would ask outside nations to cut production by around 900,000 bpd for a period of 6-months starting from January 2017. The Kremlin has heavily disputed this figure and says OPEC is going back on previous statements.
Investment firm CTI China Renaissance, who provides valuable research reports for oil producing nations, said that any cut above 200,000 bpd would be adequate for non-OPEC nations.
Meanwhile, OPEC’s third largest producer Iran is still on the fence with the deal. Tehran has said they need an exemption to make up for lost revenue after U.S. sanctions hobbled the country. Restrictions have only just been lifted at the start of 2016. The Algerian Energy Minister will meet with his Iranian counterpart over the weekend to try and find common ground.
Tamas Varga, PVM Oil senior analyst said, “Should Iran reject this deal it would be enough for a total collapse of the talks. It’s very important they get on board with the plan and it might mean certain concessions from the other member states.”
The oil sector has been dogged by over-supply for nearly three years now, and most experts believe that OPEC must act to limit production. The International Energy Agency (IEA) recently said they were not sure if an output cut would be enough to prop up the market.
