EYES are focused on Doha today. Although some are expecting an agreement on output freeze arrangement amongst major, if not all, stakeholders, yet the big question — what even if the meeting results in an output freeze agreement continues to haunt. Conflicting signals continued hampering crude markets, all through last week. Markets remained erratic, jumping up and down, reacting to conflicting news streams on the possible outcome of the meeting. Oil markets turned bullish again last Tuesday on reports that a deal has been struck between Russia and Saudi Arabia, the two oil heavyweights. Saudi Arabia and Russia have reached agreement on freezing oil production, irrespective of Iran joining the arrangement or not, Interfax reported. The consensus was reached during talks between the two countries, the report said, citing an unidentified "informed diplomatic source." Consequently, prices went up, with Brent rallying on the day to its highest mark for the year. Markets however continued to follow and react to developments. The very next day, on Wednesday, oil futures traded lower on renewed concerns that the producers' meeting set for Sunday would do little to trim oversupply. Russian Oil Minister Alexander Novak told a closed-door briefing of energy analysts in Moscow on Wednesday that the deal would be loosely framed with few detailed commitments, Reuters reported. "The agreement will not be very rigidly formulated, it is more of a gentlemen's agreement," one of those present said, paraphrasing Novak's words at the briefing. "There is no plan to sign binding documents," Reuters quoted another person present at the briefing. Also pulling the markets down was the strengthening dollar and new data showing weak global demand growth, underlining once again, that a rebalancing of the market was still not imminent. Talks of output freeze have definitely kept markets on tenterhooks, ever since it surfaced in February. Although Brent oil prices are still down by almost 37 percent year-on-year, following the talks of a potential production ‘freeze' among major oil producers, Brent oil rose by 19 percent month-on-month in March alone. And spikes continue to rattle markets. Low oil prices have produced enough collective suffering among the producers, most agree, yet, not everyone seem convinced, that the spike registered in recent weeks is sustainable. Fundamentals continue to be soft, none can deny. Since the output freeze talks began, Russia, Iraq and Iran have all increased production, hitting output highs not seen in recent times. Iran, in particular, has staked out its position that it will not freeze output, until it reaches its pre-sanctions output level. The Iranian output and exports are on rise, as they aggressively continue to strive for market share, at the expense of others. Tehran has just wrapped up a trade mission to India, and in a bid to undercut other producers', has discounted its oil price to Asian buyers. This discounting by Tehran has been unheard of. And besides Iran, there is more oil waiting in the wings. Libya may finally see its government coalesce, allowing it to ramp up production and exports, once again. Iraqi output is also on rise. Even if there is an agreement in Doha on Sunday among OPEC and non-OPEC producers, capping production would still leave a glut of oil on the world market, analysts hence continue to insist. If output can be capped at January levels, this would still be exceptionally high, Riyadh based Jadwa Investment argued in its April market report. OPEC production was at record highs, at 33.4 million bpd, even when excluding Indonesia, and so too was the Russian output. The deal, if agreed to, would therefore maintain the excess supply that is currently depressing oil prices, especially since a ‘freeze' would not apply to crude oil exports, Jadwa argued. "In our view, there are significant risks to either an agreement being reached or a lack of implementation even if there is an agreement. In both instances we would expect the gains of the previous month or so to be lost. As such we maintain our full year 2016 Brent forecast at $33/barrel with prices increasing to $44/barrel in 2017." Market growth also seems stumbling. The International Energy Agency trimmed its estimates for 2016 global demand growth from last month to 1.16 million bpd. The Organization of the Petroleum Exporting Countries too lowered its forecast of world oil demand growth by 50,000 barrels per day (bpd), underlining in its April monthly report that further downward revisions could follow. Based on the latest data, Opec says that the global supply glut for 2016 stands at 790,000 bpd, if the group keeps pumping at March's rate, up from the 760,000 bpd reported last month. OPEC pumped 32.25 million bpd in March, the report said, citing secondary sources, up about 15,000 bpd from February. IEA is also of the view that a deal to freeze oil production by Opec and non-Opec producers will have a limited impact on global supply. Goldman Sachs said earlier the week that even if a deal is struck, it would not rebalance the market, and oil supplies may continue to swell. "We see risks that even a production agreement could be followed by sequentially rising Opec production given the multitude of potential sources of production growth. "The market has taken comfort in the production freeze discussion... (but) we continue to believe that the balancing of the oil market is still far from secured," Goldman Sachs insisted. A lot seems hinging on Doha. But even if, and this remains a big if, an agreement is thrashed out in Doha, it may induce a short-lived spike, yet markets would take their time to stabilize. Market stability is possible once output is reduced. That is still not in the cards. Oil Minister Ali Al-Naimi, while responding to a question by the Arabic daily Al-Hayat about a possible output cut, emphatically underlined, "forget about this topic." The battle for market share is not over – yet. And despite all the talks of freezing output at current levels, more blood bath could not be ruled out!
