I really don’t think it matters what happened at the OPEC + Russia meeting in Doha, Qatar on April 17. Agreements between those characters don’t have any enforcement provisions and the countries all have a long history of cheating. However, Saudi Arabia and Russia are losing so much money at today’s price of oil that maybe those two will take some action to cut back on production. They are the only two attendees that mattered anyway.
The meeting does send a clear message to the market that today’s low oil prices are unacceptable. Speculators that have been shorting oil futures should take notice.
Fundamentals Matter: The outcome of the meeting doesn’t matter because market forces are doing what they always do. Oil supply and demand will be back in balance by the end of this year regardless of what OPEC does. Saudi Arabia should take some action just to give the West an impression that they are in control. The Kingdom needs protection from the U.S. military, especially now that Iran is gaining more influence in the region. The last thing they need is for the U.S. navy to pull a carrier group out of the Persian Gulf.
On the demand side, the thirst for hydrocarbon-based liquid fuels, lubricants and feedstock is relentless. Demand increases by 1.0 to 1.5 million barrels per day each year. In 2015, demand increased by 1.8 million barrels per day. The only decline we’ve seen in decades was during the global economic meltdown of 2008-2009. In 2010, demand increased by 3.3 million barrels per day, getting it right back to the long-term trend line.
Related: OPEC Report Suggests Massive Oil Price Rebound
In their April 14, 2016 Oil Market Report, the International Energy Agency (IEA) forecasts that world oil demand will be pushing 97.0 million barrels per day by year-end. That compares to 94.8 million barrels per day in the first quarter