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Stalemate for oil market

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Excerpt: With an upcoming Opec meeting this week, many experts are wondering about how the oil market will recover from recent price crashes.
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​There are concerns for the oil market and how it will stabilise itself after a turbulent period.

In recent years the oil market has been hit by floundering prices, which has caused leading producers - including the Organisation of Petroleum Exporting Countries (Opec) - to consider a potential supply freeze.

Later this week, the cross-governmental cartel is meeting with other key producers, such as Russia, to discuss the future of the market. However, there are concerns that there may be somewhat of a stalemate, with non-Opec countries struggling to co-operate with Opec itself.

Meeting in Algeria, Russian energy minister Alexander Novak will discuss output cuts and other developments with the petroleum organisation. It seems unlikely that Russia, which is the largest oil producer in the world - will agree to coordinated action when it comes to output.

Five of Russia's leading oil companies, which produce around three-quarters of the country's oil supply, have all said they will increase their production next year.

There was hope for a resolution that would satisfy both Opec and non-Opec nations earlier this year when Russian President Vladimir Putin met with Saudi Deputy Crown Prince Mohammad bin Salman. During their talks in China, the pair agreed to work together to help stabilise the market and ensure a solid future for all oil producers.

In 2014 Opec decided to abolish its agreement to encourage oil prices by reducing production and members, such as Saudi Arabia, have increased production by nearly ten per cent. This has impacted the US supply but has also affected the oil companies themselves with prices suffering.

Many experts believe that a deal to freeze production will be the only way to recover the market, after this period of mass over-supplying has triggered a price collapse that has lasted two years.

It is hoped that the upcoming Algeria meeting will have more success than previous attempts, such as the recent talks in Doha in Qatar. Although this caused a small return in confidence to the market, making the price of barrel to reach $50 by June, there are still concerns about long-term stability.

Saudi Arabia has said it would drop its production levels to what they were at the start of the year, but wanted the same restrictions placed on rival Iran. However, Iran, which has been subjected to a number of limitations in recent years, refused to agree to the deal.

Speaking to Bloomberg, Michael Poulsen, an analyst at Global Risk Management Ltd, said the two countries are closer to reaching an agreement than they were earlier in the year.

He said: "The symbolism would be more important than the actual number in the event that something is agreed to be cut."​

Published: 03/10/2016 09:43
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