The logo of the Organization of the Petroleum Exporting Countries (OPEC) is pictured at its headquarters in Vienna, Austria, March 21, 2016.Leonhard Foeger/Reuters
OPEC ministers showed no signs of embracing production cuts as they arrived in Vienna on Wednesday amid analysts' forecasts that recent unplanned supply outages are contributing to a more rapid rebalancing of the glutted oil market.
The meeting of the 13-member Organization of Petroleum Exporting Countries, which opens on Thursday, will be a far cry from the crisis-filled session last December, when crude prices were in the low $40s (U.S.) a barrel and moving down quickly because of the cartel's inability to agree to production restraint.
Prices climbed above $50 last week and since then have hovered in the high $40s, buoyed by production losses in Western Canada, Nigeria, Libya and Colombia. And while crude could fall further as production comes back on stream, many analysts argue the temporary outages, combined with rising demand and falling non-OPEC supply, will result in a more balanced supply-demand picture later this year.
The budding sense of optimism, though not universally shared, has reduced pressure on OPEC and, in particular, Saudi Arabia to act decisively this week.
"We aren't expecting fireworks, but we are expecting [that there will be] enough signs of co-ordination and that the Saudis [will] make sure they communicate they will not flood the market," Amrita Sen, an analyst with London-based Energy Aspects, said in an e-mail.
IHS Inc. analyst Carlos Pascual said the ongoing conflict in the Middle East is likely to drive oil prices higher than the improving supply-demand balance would warrant. "As markets balance, and with demand growth projected to outstrip supply gains next year, IHS Energy expects concerns over political risk could add a price premium to oil," Mr. Pascual said in a report on Wednesday
Reports from Vienna suggested that Saudi Arabia may agree to a new production ceiling for OPEC, although not a production cut or quota for individual members. But even that level of co-operation may be elusive as Iran continues to insist on its right to boost production to presanctions levels, and Saudi Arabia is keen to defend its markets.
"I'm skeptical at this point – very skeptical," said Greg Priddy, who follows OPEC for Eurasia Group, a New York-based political risk research firm. "But even if there was some sort of vague commitment to a ceiling, I don't think it would make any difference on volumes. The Saudi and Iranian positions on actual restraint on their part are clear."
Even if OPEC shows no restraint, there is some optimism about prices, as non-OPEC production is set to fall substantially. Ms. Sen forecasts that West Texas intermediate prices will average $63 a barrel in the fourth quarter of 2016, $73 next year and $95 in 2018, before easing back to $78 in 2020.
However, companies in Canada's oil patch remain skeptical the cartel's meeting will jolt markets wearied by two years of weak prices.
Husky Energy Inc. said on Wednesday that a rise in U.S. crude to $50 a barrel would generate about $800-million (Canadian) in free cash flow per year, enabling the company to potentially reinstate its cash dividend. The payout was eliminated last year, cancelling what would have been $1.2-billion in payments for 2016.
However, chief executive officer Asim Ghosh offered no timeline for doing so, telling investors at a meeting in Toronto that he had little confidence in current prices and that oil markets have not yet returned to balance.
"OPEC itself is saying, 'Look, we don't have a role to play any more. Our strategy of doing nothing is working,'" he said. "We do not yet have any confidence that they have discovered a sustainable price level in the industry."
In Vienna, Venezuelan Energy Minister Eulogio Del Pino noted that supply outages have propped up prices in recent months, but he warned that a global oil glut might build up again when missing barrels return.
With reports from Jeff Lewis in Calgary and Reuters