Both Russia and Saudi Arabia have threatened to ramp up production after less than a week ago both had said they were willing to discuss freezing oil output ahead of the doomed Doha talks last weekend.
Both producers will continue to “pump as much oil as possible”, said the head of the Oil Industry and Markets Division at the International Energy Agency (IEA), on Friday, CNBC reported.
“In the post-Doha world, when we’re still in what is essentially a free market for oil, they (the Russians) will pump as much oil out as the market will absorb and the Saudis have said much the same thing. We’re back to where we were before Doha where people produce what they can, sell what they can for whatever price they can achieve and the market takes care of the surpluses in time,” the IEA’s Neil Atkinson said.
“As far as the Russians are concerned, even in the run-up to Doha when they were going to be party to an agreement to freeze production, they were actually pumping up production anyway,” Atkinson noted.
It was less than a week that hopes of a freeze of oil production levels were dashed after the anticlimax of talks between OPEC and non-OPEC producers in Doha last Sunday and Atkinson’s comments come less than a week after the incident.
Unless regional rival Iran freeze output, OPEC leader Saudi Arabia said it would not do the same. After years of economic sanctions, Iran now is keen to get its own oil industry back on track and hence it refused.
Oil analysts have speculated onhat could happen at the next meeting of the 13-country group on June 2 with tensions between the OPEC members rising.
Following the failure of talks at Doha, oil markets were not impressed even after OPEC officials said on Thursday that they might discuss an oil production freeze again when the group meets then.
Saudi Arabia, Iran and non-OPEC producer Russia all threatened to ramp up production just earlier this week.
There is no spare production capacity essentially anywhere in the world except Saudi Arabia which had spare production capacity (of up to 2 million barrels a day) as well as a couple of other Middle Eastern producers, Atkinson noted.
Primarily due to a glut in supply and lagging demand, all oil producers have been hit hard by the drop in oil prices since mid-2014. However some have been hit more than others. Rigs have been closed and production and exploration have been cut by those with higher production costs, such as U.S. shale oil producers, and who have particularly felt the hit.
With U.S. shale oil production expected to fall further this year, Atkinson believed that oil markets would come close to a balance in the second half of 2016. However, he said there was a possibility that the U.S. could ramp up production easily again in future.
“In our numbers, the U.S. by itself is going to shed something like 450,000 to 500,000 barrels a day in 2016 versus 2015. It’s coming down before our very eyes,” Atkinson said.
(Adapted from Bloomberg)