Oil traders getting wary of proposed production freezes by OPEC and others

Bloomberg/Fuel Fix:
One of the world’s biggest commodities traders doubts oil producers will be able to agree on curbing output to pull up prices.

While it’s “easier” to have talks on freezing supplies now than it was at a meeting in Doha earlier this year, a deal is unlikely at a gathering in Algiers later this month, said David Fyfe, Gunvor Group Ltd.’s head of market research and analysis. Producers have pledged to discuss measures to help the market, but Saudi Arabia has said it sees no need to limit oil output and Russia expressed doubt that a cap is needed.

“There won’t be an agreement but it does no harm to keep talking about this because that itself is price supportive,” Fyfe said at the Asia Pacific Petroleum Conference in Singapore on Wednesday. “Of course, there’s a risk of crying wolf. But at some stage it’s the law of diminishing returns when you keep talking about a production agreement and not actually reach one.”

Crude has jumped more than 10 percent since early August amid speculation that global producers will be able to reach an international agreement to cap output and shrink a global glut. Still, Iran’s desire to boost supplies to levels before international sanctions were imposed on it, as well as a lack of clarity from others such as Saudi Arabia and Russia on how a deal may be structured is making analysts skeptical. A previous proposal that had also boosted prices earlier this year ended without an accord at an April meeting.

A freeze in output by the Organization of Petroleum Exporting Countries would do nothing to oil prices, Christof Ruehl, the global head of research at Abu Dhabi Investment Authority, said at APPEC in Singapore on Wednesday. A cut in production is necessary to change prices, he said.
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OPEC and Russia have yet to come to grips with the reality that the US domestic production has replaced much of the export markets on the world stage.  There attempts to drive the US back into becoming a major importer again have utterly failed.  They are now seeing the US producers as competitors for not just the US business but also as sellers in the world markets.

It is going to take more than jawboning to change that dynamic and the traders will only levitate the market so long on the pronouncements of a future freeze.

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