Little hope in Doha for Venezuela and Nigeria

Nigeria and Venezuela have been two of the most vocal producers in calling for a coordinated response

Gulf News

Dubai: A meeting of major oil producers in Doha on Sunday is unlikely to be enough to ease pressures on producing economies, such as Venezuela and Nigeria, reeling under the low oil price.

Producers from up to 20 nations will meet in the Qatari capital to discuss a February proposal by Saudi Arabia, Russia, Qatar and Venezuela to support oil prices by capping production at January levels.

But with Iran having said it won’t join the proposal and Libya not attending, there is little faith of an meaningful agreement.

“Any agreement in Doha will have no consequences for producers,” Bob McNally, a former energy adviser to the George W. Bush administration and founder and president of the United States-based Rapidan Group, told Gulf News.

“From the beginning it was a ruse hatched amid widespread panic,” he said.

Opec members Nigeria and Venezuela have been two of the most vocal producers in calling for a coordinated response as oil prices fell by as much as 70 per cent in the past two years. Both countries, who are sending representatives to Doha, are overwhelmingly dependent on oil to fuel their economies.

An increase in the oil price would be “welcomed” by Nigeria though “capping production isn’t itself likely to have a major positive impact on Nigeria in the near term,” Daniel Magnowski, a senior analyst at Control Risks in London, told Gulf News.

The International Monetary Fund (IMF) on April 12 cut its 2016 growth forecast for Nigeria’s economy to 2.3 per cent, from a forecast of 4.1 per cent in January.

“The level of price increase that Nigeria needs in order to see a significant near-term impact is far higher than anything that’s likely to be generated by the Doha meeting,” Magnowski said.

“If there’s no agreement, and the oil price stays where it is or falls further, all it would really do is underline the urgency and importance of Nigeria diversifying sources of government income.”

Venezuela, who has the world’s largest oil reserves and where oil counts for 90 per cent of exports, is expected to face further economic uncertainty unless there is a substantial, meaningful agreement.

“If oil prices do not recover, Venezuela faces hyperinflation in the next 12 months,” Francisco Monaldi, a fellow at the Baker Institute at Rice University in Houston, told Gulf News.

Even with an agreement it “will be rough” for Venezuela unless prices rise above $60 a barrel, which is when many of its projects become profitable, he said.

Venezuela’s economy is expected to contract by 8 per cent this year, the IMF said on April 12, after shrinking by 10 per cent in 2015. Unemployment is estimated to reach 17 per cent.

“In the absence of higher oil prices, there is a serious risk that Venezuela will default on its international debt obligations in the last quarter of 2016,” Harold Trinkunas, a senior fellow and director at the Brookings Institue in Washington DC, told Gulf News.

“Continued poor economic performance due to oil prices, compounded by default, would put additional pressure on President Maduro and erode his political base in the critical period before nationwide elections for governors and mayors in December 2016,” he said.

The United States, where a shale revolution led the world’s biggest economy to become the third largest oil producer after Saudi Arabia and Russia, will not be in Doha on Sunday.

The meeting “matters less” for the shale producers than the traditional producers attending the meeting, McNally said. US oil producers are less dependent on foreign markets with most of their oil sold domestically.

US crude has rallied more than 50 per cent since mid-February to close on April 15 at $40.36 a barrel but McNally says the “the jury is still out” as to whether the rebound will stick.

“Until the signs are clearer … shale companies and their investors are likely to remain cautious,” he said.

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