Market Overview

OPEC Agreement Is Possible ... In A Few Months

OPEC Agreement Is Possible ... In A Few Months

OPEC members are currently talking in Algiers with the conversation surrounding a potential deal to freeze oil output levels. However, oil investors shouldn't expect a deal to be made this week, but it is possible one can be made in November.

Bloomberg cited data from the International Monetary Fund (IMF), which showed that OPEC's largest and most influential member, Saudi Arabia, will suffer a fiscal deficit equal to 13.5 percent of its GDP this year. On the other hand, Saudi Arabia's main rival, Iran, will suffer a fiscal deficit equal to just 2.5 percent of its GDP.

The IMF added that Saudi Arabia needs to sell oil close to $67 a barrel to erase any deficit, but Iran can erase its deficit by selling oil at $61.50.

Related Link: OPEC Outcome Unlikely To Sway Weak Q4 Oil Outlook: Goldman

As such, it may be in the collective interest of all oil producing nations to reach an agreement to freeze supply which should boost oil prices higher. A major obstacle to any agreement stems from Saudi Arabia's refusal to take part in any agreement unless Iran would do so in kind.

Iran has shown no willingness to agree to a freeze as it wants to regain market share it lost as it was under an economic embargo.

However, Bloomberg reported a shift in Saudi Arabia's policy. The publication noted that Saudi Arabia "signaled for the first time it may accept the idea that Iran keep output at maximum levels."

Saudi Arabia's Oil Minister Khalid Al-Falih confirmed a deal can be reached in November and that the country would "be a willing partner in this freeze agreement." The minister also acknowledged that three countries, Iran, Libya and Nigeria, will have "special conditions" as part of any deal.

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