Oil prices rose to their highest levels in six weeks as traders bet the market would tighten later this year.
There was some impetus from news overnight that oil inventories in the US declined last week, but the main focus in the past couple of weeks has been on Opec oil ministers holding informal discussions at the end of next month on the sidelines of an industry gathering in Algeria next month.
World benchmark North Sea Brent crude futures had recovered earlier this year after the historically deep slump on signs that non-Opec production was being cut sharply. Brent rose from January lows just below US$28 a barrel to a high in early July just above $52, but slid back in subsequent weeks as evidence gathered that the pace of demand growth was slowing.
The rise from just below $42 to the high briefly above $50 is seen by many analysts as built on an unlikely chance that Opec ministers will take any concrete action.
“The main players – Saudi Arabia and Iran – didn’t even ask for the meeting, it is more the weak members, like Venezuela and Nigeria that are desperate for the others to cut,” said Amrita Sen, oil analyst at Energy Aspects, a consultancy.
A previous meeting in April this year in Doha ended in failure as Saudi Arabia and Iran held fast on their positions, which is that Saudi Arabia will not cut unless Iran agrees to, and Iran won’t agree to cut until it is back to pre-sanctions levels of output above 4 million barrels per day.
While it has seen production grow by 500,000 bpd since nuclear sanctions were lifted in January, Iran’s output is stalled at around 3.6 million bpd while it tries to work out investment terms with international oil companies.
“The prospect of Opec cutting output or reintroducing the freeze seems to have captivated markets but ... it is highly unlikely that any member will voluntarily limit production,” says Ed Bell, a commodities analyst at NBAD in Dubai.
“Since these proposals were last floated [for the Doba meeting], more Opec members have seen production disrupted, most notably Nigeria.”
Indeed, the US Energy Information Agency yesterday estimated that Nigeria’s outages – driven by militant action in the delta oilfields – will cut production by a further 500,000 bpd this year.
Venezuela, the other Opec member in dire financial straits, has seen its industry dwindle through lack of investment to the extent that it is now the biggest destination for oil exported from the US – 50,000 bpd – since restrictions were lifted to allow more US oil exports earlier this year.
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