In an effort to put a floor under oil prices and allow demand growth to catch up with supply, the oil ministers from OPEC (Organization of the Petroleum Exporting Countries) plus Russia will meet in Doha on April 17 in order agree on oil production freeze, shipping company Teekay said.
The global oil market oversupply, which began in 2014, coincided with the tanker market recovery, as high supply meant there were more barrels available for transport.
This increase in supply available for transportation, coupled with a surge in oil consumption due to the dramatic drop in oil prices, created a perfect storm for tanker demand to increase significantly in 2014 and 2015.
“So what would a production freeze mean for tanker demand going forward?” Teekay asks.
Even if a production freeze agreement is reached, it is not necessarily negative for tanker demand in the near-term. Russia and most of OPEC are already producing at record high levels, which means that the crude tanker market should remain well supported until oil demand catches up with supply and oil prices begin to push higher.
Even then, the rebalancing of oil prices is likely to take time, meaning that the crude tanker market should remain well-supported through the remainder of 2016.
However, the agreement, which would see production capped at January 2016 levels, may prove difficult as Iran has stated that it will not participate in a production freeze given they have just emerged from sanctions.
Furthermore, Saudi Arabia said that it will only agree to a production freeze if Iran and the rest of OPEC, along with Russia, also agree.
OPEC and Russia currently account for around 46% of global crude oil production, therefore any agreement could have a significant impact on global oil markets, Teekay added.