A recovery in the oil price to around $50 has eased pressure on Opec to turn down the taps when it gathers in Vienna on Thursday for its first meeting with the powerful Saudi crown prince’s new oil minister.
“The general consensus is that there will be no agreement to establish quotas or lower production,” said James Williams at WTRG Economics. “The most restrictive outcome might be an agreement to a production ceiling.”
Historically the Organisation of the Petroleum Exporting Countries, which pumps around a third of the world’s oil or some 30 million barrels every day, has responded to a fall in prices by cutting production.
But in the current cycle, which saw prices collapse from over $100 in 2014 to close to $25 this January, producers led by Saudi Arabia have changed strategy, maintaining output even with lower prices.
Around 1200 GMT, US benchmark West Texas Intermediate for delivery in July rose 26 cents to $49.59 per barrel.
Brent North Sea crude for July fell 18 cents to $49.58 a barrel compared with Monday’s close.
The aim, experts say, was to keep hold of market share by seeking to put competitors that need a higher oil price than the Gulf states to make money — particularly US shale oil producers — out of business.
And even though it has taken a while, straining even Saudi Arabia’s public finances — to say nothing of struggling Opec member Nigeria and on-the-brink Venezuela — Riyadh’s approach now looks to be bearing fruit, experts say.
Last week both main oil benchmarks, West Texas Intermediate and Brent crude, briefly touched the psychologically important level of $50 a barrel and remain close to that level despite slipping back slightly.
Dozens of US shale oil firms have gone bankrupt and non-Opec production is on course to drop sharply this year. The International Energy Agency predicted on May 12 that global oversupply will “shrink dramatically”. But this easing of pressure is just as well, because the bitter animosity between Saudi Arabia and Iran — regional rivals engaged in proxy wars in Syria and Yemen — means that any agreement to cut Opec output is highly unlikely.