The oil price jumped from around $42 to more than $50 a barrel in August. But in the past few days the momentum has weakened. It was driven largely by hopes that oil exporters’ cartel Opec would manage to agree to a production freeze in a meeting next month. But it looks no more likely to do so “than to field a winning bobsleigh team at
the 2018 Winter Olympics”, says Martin Vander Weyer in The Spectator.
Iran has said it wants to increase its output to levels seen before the West imposed sanctions on the regime. That implies a rise to around four million barrels per day (mbpd) from 3.85 mbpd now. Saudi Arabia has hitherto refused to freeze its output without Iran doing the same, and said last weekend it doesn’t think “significant intervention” in the market is needed, thus pouring cold water on speculation about a possible halt in production.
But even if there were such a freeze, it would make precious little difference to the supply picture. Saudi Arabia increased its output to a record 10.67 mbpd in July. Three key sources of supply disruptions – Iraq, Libya and Nigeria – have all shown signs of getting back on track, says Goldman Sachs, and each country’s output could ensure there is a global surplus in the second half of 2016, instead of the “modest” deficit anticipated.
Finally, the increasing efficiency of the US shale sector indicates that “the fall in US oil output is now gentler than seemed likely in the spring”, says Ed Crooks in the Financial Times. Oil’s summer bounce was too much too soon.