“Iran has already said that it won’t adhere to it, and I don’t expect Iraq to do so either as their budget is in a very bad state,” Omar Al-Ubaydli, program director for international and geopolitical studies at the Bahrain Center for Strategic, International and Energy Studies, said in an email.
Iran has said it plans to begin exporting more oil as soon as financial sanctions are lifted this year with the goal of getting back to pre-sanction output levels. The country was once the second-largest producer in OPEC. “It’s not realistic to expect Saudi Arabia and Iran to have severed diplomatic relations, yet still coordinate oil production freezes,” Al-Ubaydli said.
He added: “Iran’s role is to blatantly expose the instability of the proposed arrangement, in contrast to the Russians, who are likely to cheat covertly and deny it for as long as they can get away with it, before Putin then claims that he cannot control Russian oil companies because it is in the hands of private oil companies that answer to their shareholders.”
Doubts about the meeting partly led to a drop in oil prices Thursday. West Texas Intermediate crude fell 45 cents to $37.84 a barrel on the New York Mercantile Exchange.
Brent oil, which is used to price international crude, declined $1.02 to $40.05 a barrel.
Even if the major oil producers were able to reach an agreement to freeze production, it wouldn’t alleviate the glut because the market is still oversupplied by at least 1.25 million barrels to more than 2 million barrels.
“Even if there is an agreement announced, it will not be adhered to,” said Hossein Askari, Iran professor of business and international affairs for the Elliott School of International Affairs at George Washington University. “If you look at the history of OPEC since its founding, it hasn’t acted as a cartel,” he said. “The only way it has been effective is when Saudi Arabia acted as a swing producer by itself. And that’s not a cartel.”
In the past, OPEC, led by Saudi Arabia, would reduce its production to force prices higher or increase production to lower prices.
So far, OPEC has refused to reduce its production, a decision analysts say has been made to defend market share against the rise of U.S. shale output.
“It’s not really about actually effecting a price increase — it’s about Saudi Arabia showing Saudi Arabian citizens and other analysts that the Saudi government’s assessment is 100 percent correct: other major oil producers, such as Russia, Iran and Iraq, cannot be trusted, and defending market share is absolutely the right choice for Saudi Arabia,” Al-Ubaydli said.
Since oil prices began to fall in 2014, U.S. energy companies have cut spending plans, pulled drilling rigs and laid off workers.
Murphy Oil Corp. of El Dorado said earlier this year that it plans to spend 62 percent less this year. The 2016 capital spending cut follows a 30 percent cut in spending and 20 percent cut in employees in 2015.
The company also has left the door open for further cuts this year.
“U.S. shale producers will continue to suffer heavily; they have been innovating to cut costs, but there are limits to the technological progress that they can achieve on a consistent basis,” Al-Ubaydli said.