In April, major oil-producing states failed to reach an output-freezing agreement in Doha, Qatar. Saudi Arabia, which had previously said that it would freeze output only if Iran followed suit, cited Tehran’s absence from the talks as reason for not supporting an output freeze.
The upcoming meeting in Algiers, which is expected to be held on September 28, will be attended by all 14 ministers of OPEC, according to the group’s new secretary-general Mohammed Barkindo, signaling that oil producers may finally be ready to sign an oil output freeze deal.
"The fundamentals of the global oil market have changed significantly in the last couple of years, including the big shift in OPEC strategy. It is difficult to predict what will happen in Algeria though some rather contradictory statements made by OPEC officials come across as a 'deja vu' of the developments preceding the Doha meeting last year," Carole Nakhle, Director at Crystol Energy, told Sputnik.
The notion is also being backed by Adi Imsirovic, Teaching Fellow of University of Surrey's School of Economics, who argued any cut in oil production would be hard to reach for a number of reasons.
"Any limitation in output and subsequent price increase would only benefit US shale producers who would increase production. All oil producers are desperate for cash making a 'free rider' problem — in plain english, it pays to cheat," Imsirovic explained.
Thus, some sort of an agreement is possible to be reached, as many oil producers are rather desperate at the curent oil price levels, Imsirovic added.
"I think this time it is more hopeful that they will come closer to freeze the production because Saudi Arabia’s output is already in record high and Iran is also closer to their pre-sanction level," Xiaoyi Mu, Senior Lecturer in Energy Economics at the Center for Energy, Petroleum and Mineral Law and Policy, told Sputnik.
However, the nature of the output-freezing agreement, which could last one year according to the OPEC chief, and its implementation would be more important than simply reaching the deal, Nakhle noted.
"There are currently several strong forces at work in the global oil market which may limit the outcome of any potential deal in terms of shoring prices up: inventories are at record high, additional supplies are expected to come on stream including from within OPEC, then there is the US shale reaction, and on the demand side, the outlook is still rather shaky," she added.
Nevertheless, with oil prices slightly recovering in 2016, the market is already balancing out and prices may increase with or without any agreement from OPEC and major oil producers, Imsirovic argued.
Even if the IEF participants reach some kind of consensus on stemming oil production, it is doubtful to significantly impact the current oil prices, according to Xiaoyi Mu.
"Depending on how you define 'stablize', the history has it that even when they agree to cut production, they may not follow. I am not optimistic that the price will be stabilized at a significantly higher level because of the deal," Xiaoyi Mu warned.
"Iran has reached maximum production for the time being and will probably be ready to talk (as they cannot increase it substantially). Saudis always said they would be prepared to 'freeze' if the others did the same. So, there is some basis for them to get to talk," Imsirovic concluded.
