But against this backdrop, the Organisation of the Petroleum Exporting Countries has regained some of its lost relevance, and the producer group’s decision in Vienna on November 30 on restraining output could decide the future course of oil prices.
The International Energy Agency (IEA) has said that Opec’s plan to limit production will play a key role in speeding up the rebalancing of oil markets. Without Opec intervention, the market will remain oversupplied through the first half of next year, the Paris-based agency said in its October monthly report.
But challenges have emerged on several fronts since Opec announced a preliminary deal in late September to limit production to between 32.5 million and 33 million barrels a day (bpd). Opec produced 33.24mmbd of crude in September, according to an S&P Global Platts |survey.
An Opec technical meeting in Vienna at the end of October including a day of discussions with non-Opec producers failed to yield the desired results and drove prices lower.
Front-month ICE Brent futures settled at US$48.30 a barrel on October 31 and NYMEX WTI (West Texas Intermediate) at $46.86, both down 5 per cent from levels seen on October 1.
Opec had hoped to emerge with enough parameters of its freeze agreement sorted out to gain the commitment of several non-Opec producers to join in reining in output. Instead, the meeting only served to expose the divisions within Opec, affirming doubts among sceptics that the organisation would be able to implement the freeze plan tentatively reached in Algiers last month.
And the six non-Opec producers – Azerbaijan, Brazil, Oman, Russia, Kazakhstan and Mexico – that attended the talks were left wanting, in essence telling the producer group to get its house in order before asking them to pledge adherence to a deal that does not exist.
The main obstacle has been the refusal of two of Opec’s biggest producers – Iran and Iraq – to restrict their growing output, putting the onus on Saudi Arabia to shoulder the bulk of any proposed cuts.
Iraq is insisting on a higher quota or an exemption from the freeze as it battles the Islamic State militant group, while Iran argues that it is entitled to produce more having lost out while under sanctions.
Iraq has also been critical of Opec’s estimate of its production using secondary sources, which it says severely underestimates the country’s actual production – a point that will make it harder for Opec members to decide which base number to use when dividing up the new production levels and further complicate an already delicate situation.
Iraq told Opec that its production in September averaged a record 4.775mmbd, up 153,000bpd from August. However, Opec’s secondary sources pegged Iraq’s output last month at 4.455mmbd, a difference of 320,000bpd with the government’s figures.
The demand-supply outlook appears to have deteriorated. Overall global oil-demand growth continues to slow, dropping from a five-year high of 2.5mmbd in the third quarter of 2015 to a four-year low of 800,000bpd in the same quarter of this year because of “vanishing OECD growth and a marked deceleration in China”, according to the IEA.
There appears to be no let-up in supply. Opec crude output rose by 160,000bpd to an all-time high of 33.64mmbd in September. as Iraq pumped at record rates and Libya reopened export terminals, the IEA said. It added that Saudi Arabia, Kuwait and the United Arab Emirates held supply at or near historic highs, while Iran was producing close to the pre-sanction level at 3.7mmbd.
Non-Opec production was up nearly 0.5mmbd on higher Russian and Kazakh output.
US crude-oil production appears to have bottomed out. Output fell to 8.428mmbd in the week ended July 1, ranging since between 8.445mmbd and 8.597mmbd, according to estimates by the US Energy Information Administration.
The EIA last month said that US crude-oil production should average 8.6mmbd next year, an upward revision of 100,000bpd from its previous forecast. In 2016, US output is expected to average 8.7mmbd, compared with 9.4mmbd in 2015, the EIA said.
A key factor capping oil prices in the past month or so has been the strength in the US dollar index, driven by the belief that US economic conditions have become robust enough to support an interest-rate increase by the Federal Reserve later this year.
A stronger dollar makes fuel and crude-oil imports more expensive for holders of other currencies, putting downward pressure on oil prices.

MRIGANKA JAIPURIYAR, the author, is associate editorial director at Asia & Middle East Oil News & Analysis, S&P Global Platts.