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opinion

Rashid Husain Syed is a journalist, energy analyst and consultant based in Toronto. For almost 25 years, he served as vice-president of a leading Saudi trading and consulting house.

All bets are on Doha.

Crude markets have been erratic this week, reacting to conflicting hints about the outcome of Sunday's meeting of major oil-producing countries in Doha, Qatar.

Markets turned bullish Tuesday on reports that a deal had been struck between Russia and Saudi Arabia on freezing crude output. Citing an unidentified "informed diplomatic source," Interfax reported that the two oil heavyweights' arrangement would stand regardless of whether Iran joined. Prices went up, with Brent rallying on the day to its highest mark for the year.

Markets continued to follow and react. On Wednesday, oil futures traded lower on renewed concerns that the producers' meeting would do little to trim oversupply. Russian oil minister Alexander Novak told a closed-door briefing of energy analysts that the deal would be loosely framed with few detailed commitments, according to Reuters.

"The agreement will not be very rigidly formulated; it is more of a gentlemen's agreement," said one of those present, apparently paraphrasing Mr. Novak's words at the briefing. "There is no plan to sign binding documents," another attendee was quoted as saying.

Talks of an output freeze by major producers have kept markets on tenterhooks since February. Although Brent oil prices are still down almost 37 per cent year-on-year, Brent rose by 19 per cent in March from the previous month alone, with spikes continuing to rattle markets.

Most agree that low oil prices have produced more than enough collective suffering among producers, yet not everyone seems convinced that the spikes of recent weeks are sustainable. Fundamentals remain soft. Since the beginning of the output freeze talks, Russia, Iraq and Iran have all increased production and hit output highs.

Iran, in particular, has staked out a position that it will not freeze output until it reaches its presanctions output level. Iranian output and exports are on the rise, as Tehran strives aggressively for market share at others' expense. Iranian officials have just wrapped up a trade mission to India, and in a bid to undercut Saudi Arabia, Tehran has discounted its oil price to Asian buyers. This kind of discounting was previously unheard of.

And there is still more oil waiting in the wings. Libya may finally see its government coalesce, allowing it to increase production and exports again. Iraqi output is also on the rise.

Even if there is an agreement in Doha on Sunday among Organization of Petroleum Exporting Countries and non-OPEC producers, analysts believe a production cap would leave a glut on the world market.

If output can be capped at January levels, this would still be exceptionally high, Saudi-based investment banker Jadwa Investment argued in its April market report. OPEC production was at record highs – 33.4 million barrels a day (b/d) – even while excluding the contributions of newly returned member Indonesia. Russian output was also at a high. So a deal would simply maintain excess supply, especially since a freeze would not apply to crude oil exports, as Jadwa argued.

Market growth is stumbling. The International Energy Agency trimmed its estimates for 2016 global demand growth from last month to 1.16 million b/d.

OPEC itself lowered its forecast for world oil demand growth by 50,000 b/d, underlining in its April monthly report that further downward revisions could follow. Based on the latest data, the cartel says that the global supply glut for 2016 stands at 790,000 b/d if the group keeps pumping at March's rate.

The International Energy Agency 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.

A lot seems to hinge on Sunday. But even if an agreement is thrashed out, any price spike would likely be short-lived.

Market stability is possible with a cut in output, but that's not currently in the cards. Responding to a question on the topic from the Arabic daily Al-Hayat, Saudi oil minister Ali al-Naimi emphatically underlined: "Forget about this topic."

Whatever happens in Doha, the battle for market share isn't over.