Futile Doha talks won’t freeze oil price recovery – Danske Bank

Senior Analyst, Jens Nærvig Pedersen at Danske Bank, notes that the highly anticipated meeting of a group major OPEC and non-OPEC oil producers in Doha on Sunday ended without a deal as the group of producers did not manage to agree on the terms of the deal.

Key Quotes

“In our view, it was unlikely to begin with that Iran would participate in a production freeze accord without conditions allowing the country to regain some market share and a deal not including Iran would not have had a material impact on the short-term outlook for world oil supply anyway, since the producers meeting in Doha are all producing close to full capacity.

OPEC is set to have its next bi-annual meeting on 2 June. The group may take another shot at finding common ground on some sort of output freeze, although the failure in Doha this weekend highlights the divide between particularly Saudi Arabia and Iran.

In the meantime, the downward trend in the USD, the improvement in the outlook for the Chinese economy and the recent drop in global manufacturing activity bottoming out should drive the oil price higher. In the medium term, US oil production is set to decline and recent developments in the US oil rig count suggest that the current official forecasts for US production could be underestimating the negative impact on output from the low oil price, which should be another supportive factor for the oil price.

Since we had not factored in any significant effect from a production freeze accord in our recent oil price forecast, the failed Doha talks do not alter our outlook for the oil price. We still look for the price of Brent crude to average USD46/bl in Q4 16 and USD52/bl in 2017 on the back of a lower USD, stronger global economic activity and a decline in non-OPEC oil output. This implies that the price on jet fuel should average USD508/MT, ULSD USD465/MT, 0.1% gasoil USD450/MT and 3.5% fuel oil USD234/MT, respectively.”