The “Doha oil freeze deal” was a farce from the beginning.
It all started with a February 11 Hail Mary attempt by Venezuela to boost oil prices by launching a rumor that oil production would be frozen (ignoring that both Russia, Saudi Arabia and Iraq are already pumping out a record output).
VENEZUELA OIL MIN PROPOSED OPEC, NON-OPEC ‘FREEZE’ PRODUCTION AT CURRENT LEVELS: RTRS. And Saudi Arabia laughed?
— zerohedge (@zerohedge) February 11, 2016
Shockingly, it worked.
First Venezuela, then the U.A.E, then Russia, then the Saudis all piled in with their own “headlines” that an oil production freeze was imminent, in the process unleashing an epic, algo-driven oil short squeeze which pushed prices higher by 60% over the past two months.
We say mostly “algo-driven” because few humans actually believed that any of the “freeze” jawboning out of OPEC nations (and Russia) had any chance of passing. After all, at its very core, Saudi Arabia’s reason to break up the OPEC cartel in its historic November 2014 meeting, when it refused to cut production, was to put as much marginal US shale producers out of business as possible (incidentally, a strategy flawed from the start as even bankrupt, shale companies continue to pump as much if not more, as they did before filing).
The only way it could do that was by keeping the market indefinitely oversupplied (according to the Saudis it is currently oversupplied by about 3 million barrels), which would ultimately crush prices and lead to the liquidation of numerous US producers.
It also also algo-driven, because the Saudi deputy crown prince Mohammed bin Salman made it clear two weeks ago that there would be no production freeze unless everyone joined in, expicitly pointing out Iran, even though Iran has repeatedly said it would not “self impose a production embargo” on itself.
No matter: the algos continued buying after forgetting this critical nuance, because, well, the “OPEC production freeze” headlines kept pouring in.
And then it all came crashing down first last night when, just two days before the Doha meeting, the same Saudi prince said the Saudi kingdom won’t restrain its oil production unless other producers, including Iran, agree to freeze output at a meeting this weekend in Doha.
“If all major producers don’t freeze production, we will not freeze production,” said Prince Mohammed, 30, who has emerged as Saudi Arabia’s leading economic force.
Worse, he also added that “If we don’t freeze, then we will sell at any opportunity we get” and made it quite clear that the next major leg in oil prices is lower: “If prices went up to $60 or $70, that would be a strong factor to push forward the wheel of development,” Prince Mohammed said. “But this battle is not my battle. It’s the battle of others who are suffering from low oil prices.”
It is indeed, and Saudi Arabia will make sure their suffering surges in the coming days.
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And then, the “OPEC production freeze” farce was fully exposed this morning when after pretending whether or not to participate in the Qatar meeting, Iran finally decided it will not attend the Doha meeting, two sources familiar with the situation told Reuters.
Iran’s oil minister had not been scheduled to attend, but Tehran was due to send Iran OPEC Governor Hossein Kazempour Ardebilli, oil ministry news agency Shana reported on Friday.
However, according to Reuters, Iran had been informed that only those countries willing to agree to freeze their output level should attend.
As a result, nobody from Iran will be present, which also means that the Saudi condition that an oil freeze will only work with Iran participating, won’t be met.
Iran has said it supports the freeze but would not join it until it raises its output and market share to their pre-sanctions levels.
Its production has already surpassed 3.5 million barrels per day (bpd) and exports are set to reach 2 million bpd next month, Iran’s deputy oil minister was quoted as saying by state news agency IRNA on Saturday. As a reminder, last week we reported that “Iran’s Massive Oil Fleet Begins To Move: 29 Million Barrels Depart Iran In Past 2 Weeks” and as a result of the 600,000 bpd jump in Iran oil exports, virtually the entire US shale production decline to date has been offset by just one nation.
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And then, just to crush any hope, earlier this morning the Saudi deputy crown prince made a repeat appearance when cited by Bloomberg, he said that “Saudi Arabia could raise crude production by more than a million barrels a day immediately as he reiterated the nation would only agree to freeze production if all major producers including Iran do the same.”
The world’s largest oil exporter could increase output to 11.5 million barrels a day immediately and go to 12.5 million in six to nine months “if we wanted to,” Prince Mohammed bin Salman, who is also Chairman of the Supreme Council of Saudi Arabian Oil Co., said in an interview Thursday. The country pumped 10.2 million barrels a day last month, according to data compiled by Bloomberg.
“I don’t suggest that we should produce more, but we can produce more,” said the prince, who is the king’s son, second in line to the throne and a leading force in the country’s economic policy. “We can produce 20 million barrels of oil per day if we invested in production capacity, but we can’t produce beyond 20 million.”
Which, of course, is just a hint that even all U.S shale production goes offline, Saudi Arabia is more than ready to plug the production gap.
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Finally, for those still hoping that some deal will emerge out of tomorrow’s Doha meeting, you can exhale now.
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