Oil prices have jumped today based on the expectations that major oil producers will arrive at a productive agreement in the upcoming output freeze meeting on Sunday 17th April 2016. Brent crude rose to a high of $43.58, the highest it has been this year, while WTI rose to $40.73.
In as much as production has begun falling within some regions in the US as a result of cutbacks on expenditure, the global oil market is still oversupplied. The U.S. Energy Information Administration said on Monday that production in the seven key shale-drilling regions would fall by 114,000 barrels a day in May compared with April.
Majority of oil traders are eagerly awaiting the decision of the Sunday meeting which will take place in Doha, Qatar. There are mixed feelings with regard to the outcome of the meeting with some investors viewing this as a prelude to an output cut later this year, although others are slightly sceptical and feel that freezing production in this global crude oil glut will do little to change the situation. Analyst are also predicting a 50% chance that the meeting would be fruitful, resulting in a general production freeze.
Russia is hopeful that a deal will be reached despite Saudi Arabia and Iran disagreeing on an output freeze. Iran insists that it will keep on pumping until its production reaches the pre-sanction level of around 4 million barrels a day. Oil output from Iran as at March had rose by 110,000 barrels per day (bbl/day) to 3.23 million barrels a day.
‘Light, sweet crude for May delivery recently rose 94 cents, or 2.3%, to $41.30 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose $1.09, or 2.5%, to $43.92 a barrel on ICE Futures Europe.’
Other factors other than the expectation of the oil freeze meeting have also contributed to the jump in prices. The weak dollar (the lowest in 8 months) is one of the factors.
Furthermore, a rise in vehicle sales in china dubbed as the world’s second largest oil consumer is also a reason contributing to the increase in oil prices.
Lastly, the plan by oil and gas workers in Kuwait to go on strike on Sunday in a government pay dispute has also lent support to the jump in oil prices.
The news comes at a time when the budding oil industry in east Africa is gearing up for production. The hopes for production before 2018 were about to be diluted as final investment decisions [(FID) (by major oil companies that have made discoveries within the region)] that would favour production on or before 2018 were far from the horizon. This restores a positive expectation especially for Kenya and Uganda who are seeking to begin production in the near future with Tanzania having already started production at its Kiliwani North gas field earlier this month.
If a positive agreement is arrived it, there might be a substantial shift in oil prices, resulting in the revival of the oil and gas industry not only regionally but globally. It is expected that when the oil price rises much focus will be on technological developments which are aimed at reducing production costs.