London (AFP) – Oil rallied this week as traders eyed a possible output freeze deal aimed at stemming fresh price losses at an impending producers’ meeting in Doha on Sunday.
Heading into the weekend, however, the market stumbled Friday as caution prevailed before the gathering, with sentiment hit also by poor Chinese data.
“The Doha meeting does not materially change the oil market balances but makes official what is already meant to happen,” wrote Barclays analyst Michael Cohen in a research note entitled ‘The brouhaha in Doha’.
“If recent supply-side … support holds, and the market’s expectations for a credible statement and commitment are met, the meeting could help prevent prices from falling back to the low $30 range.”
Major producers are meeting to try to negotiate an output freeze to drain crude oversupply — but doubts remain over whether Iran will join any accord.
Analysts are unclear on the expected outcome of the meeting of around a dozen oil exporters, including heavyweights Saudi Arabia and Russia, which could potentially send the market soaring or crashing.
Complicating prospects of a deal, OPEC kingpin Saudi Arabia has insisted it will not join an output freeze unless its regional rival Iran does so.
– Iran minister will not attend –
In a surprise twist on Friday, Tehran announced that oil minister Bijan Zanganeh will not join the talks — which will instead be attended by the Islamic republic’s OPEC representative.
Iran, which is emerging from nuclear-related Western sanctions, is expected to seek a waiver until its production reaches its pre-embargo levels.
Doha is a follow-up to talks in February between OPEC members Saudi Arabia, Qatar and Venezuela plus Russia in which they first mooted the output freeze.
The market had nosedived from above $100 in mid-2014 to 13-year lows of around $27 in February, costing exporters billions of dollars in lost revenue. Prices have since rebounded to about $40.
The collapse was triggered by a stubborn global supply glut that was worsened by a sharp rise in unconventional oil production, mainly booming US shale crude, alongside OPEC’s reluctance to cut output.
The Organization of the Petroleum Exporting Countries had warned Wednesday that the world remains awash with crude ahead of Doha, which precedes the cartel’s next scheduled output meeting on June 2.
The International Energy Agency meanwhile cautioned Thursday against over-expectation for Doha, arguing any freeze agreement would have only a “limited” impact on supplies.
The IEA did however predict that the oil market, which for months has been depressed by a vast oversupply, was expected to almost balance out in the second half of the year.
The global oil surplus would almost disappear to just 200,000 barrels per day (bpd) in the second half of this year, the IEA forecast, down sharply from 1.5 million bpd in the first six months.
The watchdog added that the pace of Iran’s return to the market, after the lifting of sanctions under its nuclear deal with world powers, had been more measured than some expected.
Iran has signalled a daily production target of four million bpd, its pre-sanctions level. Its March output stood at 3.3 million bpd.
– ‘Wild west of oil’ –
“Confusion reigns supreme and it’s unclear whether we will see oil producers agree to limit production,” said Joe Rundle, head of trading at ETX Capital.
“Swing producer Saudi Arabia is key — but made it clear it will only act if Iran joins the party.
“In the wild west of oil, no one wants to put down their gun first.”
The market was pressured Friday by news that China’s powerhouse economy grew 6.7 percent in the first quarter. That was the weakest quarterly result since the depths of the financial crisis in 2009 and sparked demand fears in key oil consumer China.
At about 1300 GMT, US benchmark West Texas Intermediate for delivery in May was down $1.16 at $40.34 a barrel compared with Thursday’s close. Brent North Sea crude for June delivery fell $1.15 to $42.69.
Both contracts have however gained about one dollar since the same stage last week.