The Doha Meeting will impact oil prices for 2016. Many analyst are confused at what will transpire at this meeting. There seems to be a weak view building that the meeting will produce some type of agreement but lots of uncertainty as to what this agreement will look like.
We see the following factors as determining the outcome at this meeting:
- Geopolitics – the adverse relationship between the Saudis and Iran
- Government Budgets of Oil Producers
- Potential Shale Production
- Progress on Syria
- Indirect Influence from US
The proxy war between Saudi Arabia and Iran is still ongoing in Yemen and slowing down or about over in Syria.
The Russians and the US has most likely agreed to end the Syrian War. Pressure from the Europeans on the migrants also played a role. In short, Russia will probably get to keep Assad in power and maybe a promise to a transitional government in the future. Syria is going to be divided into semi-autonomous areas – Alevi area under Assad (Russia and Iran), the Kurdish Northeast (YPG supported by US and opposed by Turkey). Aleppo and Palmyra will fall under the Alevis whereas Mosul will probably fall under moderate Sunni rule (positive for Turkey and Saudi Arabia). The ISIS area will be replaced by moderate Sunni forces (Turkey will play in this).
In short, the US will not put pressure on the Saudis to cut production since the Syrian solution is coming. Russia will put pressure on Iran for some type of deal or backing down so the Saudis save face. Unlike other analyst I see this as a major driving force for a deal.
The Shale producers can come on line again, but if oil prices go up by 5 or 10 USD per barrel is that enough to make them profitable or over the long-term viable. And if Clinton wins the US Election, she is against the shale producers thus I have a lower importance placed on this group than others. Look the Saudis can easily increase production at anytime creating havoc with business investment in the shale sector. Thus, this uncertainty will moderate there impact.
Fiscal budgets in Saudi Arabia and other producers are decimated. Thus time is running out on how long they can keep this up. My view is that we are at the end and pressure within will force them to work together to agree to something.
Russia had suggested this idea and I think the understanding they have achieved with the US on Syria will now pay dividends with the Saudis.
Expect prices to rally to the $45 to $50 plus level and to be closer to $60 by the end of 2016.
Yes it is true that China is impacting the market but I think India demand and the gradual recovery of the US and Europe will push demand up more. This will correct the supply problem.