OPEC Talks May Not Produce a Freeze, but Perhaps a Thaw

By: JENNY W. HSU in Hong Kong, SUMMER SAID in Dubai and GEORGI KANTCHEV in Algiers for the Wall Street Journal.

The much-hyped unofficial OPEC talks under way in Algiers aren’t likely to end in a deal freezing oil output, but they might create embers that help thaw views at a high-stakes meeting in November, some analysts said.

Iran has continued to be the main stumbling block to an agreement among members of the Organization of the Petroleum Exporting Countries. OPEC members have been talking on the sidelines of an energy conference this week and are expected to issue a statement late Wednesday night Asia time.

Only in January did Iran come out from under western sanctions linked to its nuclear program that clipped its exports. It has held firm: It won’t consider a freeze unless it is back in full swing at roughly 4.2 million barrels a day.

“This is really not a shale versus OPEC battle,” the person said, referring to concerns by OPEC members that too much stimulation of oil prices could entice some U.S. shale producers back into the market. It is OPEC versus OPEC.”

OPEC is struggling to chart a new path as it faces slowing demand in a world awash with cheap crude. Brent crude was last up at $46.39 in Asia time, while WTI last had risen to $44.96. That is up from under $30 a barrel at the start of the year, but far off from the above-$100-a-barrel years before a drop-off in mid-2014.

Big OPEC players such as Saudi Arabia have taken a “market-share first” strategy to defend their turf against the U.S. shale boom—regardless of prices dropping.

While large, low-cost producers have been able to withstand the prolonged soft prices, smaller countries whose economies are largely dependent on oil revenue, such as Venezuela, have been lobbying for a production cap to boost prices. However, all the attempts to forge an output deal in the last few months have failed as members have been unable to find consensus.

“There is really no hope of any agreement when Iran and Saudi Arabia don’t agree,” saidAlan Oster, chief economist at National Australia Bank.

The best outcome for OPEC from Algiers, several analysts said, would be if it helped lay a foundation for a freeze at a formal meeting in Vienna on Nov. 30. By then, Iran may have reached its production target, international crude oil and products broker PVM said.

“We cannot blame Iranian oil officials who have made their position clear from the get-go that they will not partake in an output freeze until its own production reached pre-sanctions level,” PVM said.

Grace Liu, head of research at Guotai Junan International, said the Algiers talks crashed into reality.

“[The Algiers] meeting will not change the fundamentals of the market, which is still oversupplied.”

James Williams, energy economist at WTRG Economics, predicts “we may be in for a sustained volatility and wild ride for prices” in the aftermath of Algiers and run-up to Vienna.

“From day one [since the announcement], most people in the market did not expect OPEC to have any deal,” Mr. Poon said. “This is why even though different oil leaders have offered positive rhetoric on what the cartel will do, prices have stayed between $42 and $49.”