OPEC: Oil 'Freeze' Talks Collapse, Prices Tumble

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--Oil prices plummeted this week after the key members of oil producing group, OPEC, failed to agree to freeze output at talks held over the weekend.

Brent crude prices dropped from almost $45 per barrel last week to just over $41 per barrel on Monday. The failure to agree on a freeze on output increased the pressure on struggling North Sea oil producers, many of which are already reducing output, putting projects on hold and cutting jobs in response to low oil prices. Oil prices hit a 13-year low in February and are currently just over a third of their peak of $115 a barrel in June 2014. For additional information, see January 26, 2016, article--Shell Aims to Shed 10,000 Jobs.

The meeting was held Doha, Qatar, and was attended by 18 members of OPEC, including Saudi Arabia, which said it would agree to a freeze if all OPEC members had agreed. However, Iran did not attend the gathering and said it intended to maintain its output levels. In a statement, the Iranian government said: "As we're not going to sign anything, and as we're not part of the decision to freeze output, we ultimately decided it was not necessary to send a representative."

Qatar's energy minister, and OPEC president, Mohammed bin Saleh al-Sada, claimed that the oil producers needed "more time" and that "the fundamentals of the market are generally improving. We of course respect [Iran's] position...the freeze could be more effective definitely if major producers, be it from Opec members like Iran and others, as well as non-Opec members, are included in the freeze."

Sanctions against Iran were lifted in January, and the country has been producing an extra 400,000 barrels per day (BBL/d), taking its output to about 3.2 million barrels per day (MM BBL/d). The country is aiming to boost that total to around 4MM BBL/d, similar to its pre-sanction production levels in 2010-11.

Hopes that oil prices will rise are being pinned on a drop in production from non-OPEC producing countries, the largest of which is the U.S. This week, the country's Energy Information Administration (EIA) confirmed that production levels dropped below 9 million barrels per day for the first time since late 2014, something that pushed oil prices up by a few dollars per barrel.

The International Energy Agency (IEA) this week said that it believes that 2016 will witness the largest drop in non-OPEC production in a generation.

"This year, we are expecting the biggest decline in non-OPEC oil supply in the last 25 years, almost 700,000 barrels per day," said IEA executive director, Faith Birol. "At the same time, global demand growth is in a hectic pace, led by India, China and other emerging countries. When we look at all the fundamentals--demand, supply and stocks--I have all the reasons to believe that in the absence of a major economic downturn we are going to see balance in the markets latest by 2017."

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