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Doha Oil Producer Meeting: What to Expect

Major oil suppliers are set to meet in Doha, Qatar on Sun, Apr 17 to discuss an output freeze in an effort to contain the global supply glut. The outcome of the gathering of 16 countries – including most OPEC nations led by Saudi Arabia and some non-members like Russia – is expected to have far-reaching implications for all involved in the oil trade – from retail stations to budgets of oil-dependent nations.

Oil Rallies as Speculation Swirls

Now around $40-a-barrel, West Texas Intermediate (WTI) crude futures have jumped 30% since four key oil-producing countries – Russia, Saudi Arabia, Qatar and Venezuela — reached a preliminary accord to cap future production on Feb 16. At that time, prices were hovering around their 12-year lows. However, the commodity is still down 60% from June 2014 (when prices were above $100-a-barrel) and far below the breakeven price for many energy companies.

A Bumpy Road Ahead

While the Doha meeting will be attended by oil producers responsible for more than half of the global crude output, tensions have been visible throughout the negotiations. Despite reports that Russia and Saudi Arabia have already reached a consensus on the terms of freezing output, things remain far from certain.

Saudi Arabia – by far OPEC’s major contributor – and Iran have been at loggerheads from the very beginning. Riyadh’s crown prince Mohammed bin Salman said that the kingdom might agree to a production freeze only "if all countries” including its Persian rival agree to limit production to Jan 2016 levels.

On the other hand, Iran has categorically ruled out any production cut while it tries to bring oil back on the market post relief from international sanctions. Additionally, OPEC's second-biggest producer Iraq has ramped up output to record levels and Kuwait is looking to lift crude output at four-decade high. Finally, Brazil, reeling from a financial crisis, has refused to cap output as well.   

Will They or Won't They Cut?

Hopes have fueled that oil producers will agree on steps to tackle a supply glut on Apr 17 to temper the ballooning supply/demand imbalance - estimated at about 2 million barrels per day of production in excess of demand.

But most market watchers believe that a firm agreement to curb production is unlikely to emerge from Sunday’s meeting between OPEC members and other outside exporters. Moreover, an output freeze at current levels – when many producers are already at record output – would hardly speed up market re-balancing cycle, while cutbacks do not make much sense as they would aid rival producers like the U.S. shale industry. 

The overwhelming opinion points to a ‘soft agreement’ that would hardly change the real fundamentals of oil supply because anything drastic will be in nobody’s interest.

A small group of observers think that the group could defer a decision and announce a follow-up meeting.

What will the Meeting Do to Oil Prices?

The commodity could jump to $45 should a freeze happen on Sunday, while it could revisit the low-to-mid $30s range if a firm agreement proves elusive this weekend. 

The volatile oil exploration and production companies will be the most affected by the OPEC meeting’s outcome, as their fortunes are tied to commodity price fluctuation. Energy investors will be closely tracking S&P components including Apache Corp. APA, Anadarko Petroleum Corp. APC, Marathon Oil Corp. MRO, Murphy Oil Corp. MUR, Pioneer Natural Resources Co. PXD, as well as small-caps like EXCO Resources Inc. XCO, Sanchez Energy Corp. SN, etc.

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PIONEER NAT RES (PXD): Free Stock Analysis Report
APACHE CORP (APA): Free Stock Analysis Report
ANADARKO PETROL (APC): Free Stock Analysis Report
EXCO RESOURCES (XCO): Free Stock Analysis Report
MURPHY OIL (MUR): Free Stock Analysis Report
MARATHON OIL CP (MRO): Free Stock Analysis Report
SANCHEZ ENERGY (SN): Free Stock Analysis Report
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