Reuters reported Friday that the Saudis threatened to hike oil production at last weekend’s OPEC technical meeting if others members, specifically, Iran did not participate in the Algiers deal to limit production.
Count me as a skeptic of this report.
First, it seems hard to believe that if the alleged Saudi threat took place a week ago, it was kept under wraps until today. I also doubt it happened or that the Saudis would follow through on the threat.
But if true, it shows Iran is still a problem and the Saudis have not changed their policy with regard to Iran. It is also very bearish for oil prices and only reinforces what we said a month ago that “the path out of Algiers is on thin ice” and “we are not optimistic about the chances for success.”
From our September 29 client note “OPEC punts to November”:
Now we fear the “production target” strategy has only supersized expectations for the November 30 Vienna meeting and created more risk and uncertainty for the market.
Nonetheless, OPEC has stated its goal of a “production target” in order to “accelerate the ongoing drawdown for the stock overhang and bring the rebalancing forward.” The “how” remains a difficult challenge. It is the reason why a freeze deal was not achieved this week.
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