OPEC Production Freeze in September Unlikely....

With OPEC's September meeting in Algiers approaching quickly, the likelihood of a production freeze remains slim. Firstly, Iran has stated in the past its intent on regaining market share to pre-sanction levels, which suggests Iran will likely not agree to a production freeze in September. According to Iran, the country is now producing roughly 3.85 million barrels per day, which is still below its pre-sanction levels of 4.6 million barrels per day, As we have seen in the past, if Iran does not agree to a production freeze, than neither will Saudi Arabia its largest competitor in the region. Secondly, oil's supply and demand dynamics globally seem to be moving towards balance even without the intervention of OPEC. Notably, the futures curve (spread) is also tightening regardless of a production freeze, suggesting that OPEC members can continue to produce at record levels without drastically impacting the oil market. Accordingly, it is very plausible that oil could trade at more than $50 a barrel by the end of 2016 even without a freeze as markets continue to balance. Interestingly, Saudi Arabia boosted July output to a record 10.67 million barrels per day, suggesting it is clearly not concerned with limiting its own production. Overall, it would appear that both Iran and Saudi Arabia are content to allow market forces determine the oil price, much to the chagrin of smaller OPEC nations and non-OPEC producers. In the very unlikely event that OPEC members agree to a production freeze in September, this would most certainly speed up the process of re balancing the oil market.