Former OPEC President Optimistic There Will Be Deal in Algiers

ALGIERS, Capital Markets in Africa: Chakib Khelil, the former Algerian energy minister who steered OPEC the last time it decided to cut supply, said he’s confident the group will reach an accord next week as low oil prices force members to act.

With most of the Organization of Petroleum Exporting Countries now producing near full capacity, it should be straightforward to promise no further increases, said Khelil, who was the group’s president in 2008 when it agreed a record output cut that reversed a collapse in crude prices.

“I am optimistic about an oil freeze,” he said in a phone interview Thursday. “They’re already feeling pain. Why add to the pain when they can avoid it just by saying something? Most producers have already reached their maximum level and their largest share of the market. There’s not much cost.”

Brent futures traded near $47 a barrel on Friday, less than half the price two years ago. Crude rallied last month on speculation OPEC and Russia might announce a pact in the Algerian capital, but has since retreated on doubts there will be any serious steps to reduce the world oil surplus.

“They need to do something, if they don’t the market will react negatively,” Khelil said.

OPEC’s last attempt to strike a production deal with Russia collapsed in Doha in mid-April when Saudi Arabia insisted at the last minute that Iran had to join in. While Iran refused then because it was starting to restore exports after the end of sanctions, it’s now producing near full capacity and should have fewer objections to a cap, Khelil said.

The organization is unlikely to reduce supply though, as its overall strategy to eliminate the global oil surplus by pressuring its rivals will eventually succeed, Khelil said.

 “They won’t go for a cut,” he said. “They’re going to continue with the strategy to defend their share of the market, which will be re-balanced next year.”

Source: Bloomberg Business News