On Friday, oil prices advanced in the London ICE Futures exchange as hopes of the big oil producers coming around to an agreement to limit output increased once again. Brent Crude and West Texas Intermediate futures are both up just under 4% on the New York Mercantile Exchange.
Meeting Scheduled In Mid-March
Fresh hopes emerged after Venezuela Oil Minister, Eulogio Del Pino, indicated that Qatar, Saudi Arabia, Russia, and Venezuela would meet again in mid-March. He said the meeting would discuss steps to be taken to stabilize the oil market, which has been volatile in the last two weeks in the wake of the talk of four nations freezing their production output at January levels.
However, the four nations face challenges as Saudi Arabia was clear-cut in its opinion that an outright production cut was not in the cards at all. Similarly, Iran was not ready to agree as it suffered heavily during the sanction period.
Citi Futures analyst Tim Even, has reportedly said that spending a few more hours on the conference table would not likely change the decision of Iran, which was clear in going ahead with its planned increases. Jason Gammel from Jefferies said that irrespective of the producers agreeing to freeze or not, it was a fact that oversupply prevails in the market by 1.3 million barrels per day.
Spending Dropped For Second Straight Year
Gammel said that the current year would be the first in history that capital spending witnessed a drop for two straight years. He believes that supply will react to this low investment and sees non-OPEC producers reducing their production with the United States heading the list. Therefore a stage would be set for the recovery of oil prices in the latter part of the year.
The most recent data suggested that oil production in the US has not witnessed a drop as the rig count has. The rig count is down 68% from its peak. In fact, production has remained stable with 9.1 million barrels per day. This was only slightly lower than the 9.7 million barrels per day in April last year.