“Even if an output freeze is announced, we do not expect a genuine one to occur during the remainder of 2016,” says the Edinburgh consultancy.
The meeting will include members of the Organization of Petroleum Exporting Countries and several non-OPEC producers.
In February, Saudi Arabia, Russia, Qatar, and Venezuela agreed to freeze production at January levels if other producers did so too (OGJ Online, Feb. 16, 2016).
Iran refused to join the effort, saying it intended to raise output to its level before the country fell subject to international sanctions in 2012. While Iran has raised production by about 375,000 b/d since sanctions were lifted in January, Wood Mackenzie doesn’t expect the country to recover all of the 1 million b/d sanctions-related decline before 2017.
The firm expects OPEC production to be up by 500,000 b/d this year—about 450,000 b/d from Iran and the rest from Iraq.
Discussion of a production freeze has helped support oil prices since February. For an agreement on Apr. 17, “the upside is limited,” Wood Mackenzie says.
Meanwhile, market fundamentals are rebalancing.
“With or without an OPEC-non-OPEC freeze, the trend of lower global supply growth is already under way,” the firm notes.
US oil supply is declining. And world oil demand will surpass supply by the fourth quarter this year, “necessitating a drawdown from inventories to meet demand and putting upward pressure on prices.”