Who Will Blink First? -- January 26, 2016

Bloomberg/Rigzone is reporting:

With oil trading near $30 a barrel, calls for orchestrated output cuts to quell global oversupply have intensified this week. Trouble is, none of the world’s largest producers, most notably Russia and Saudi Arabia, have shown they’re ready to make a move.

OPEC Secretary-General Abdalla El-Badri called on all countries, both inside and outside the group, to join efforts to revive oil prices. "It should be viewed as something OPEC and non-OPEC tackle together," he said on Monday.

Iraq’s oil minister said on Tuesday that Saudi Arabia and Russia, the world’s two largest exporters, might be ready to become “more flexible.”

Yet there’s little sign the countries themselves are ready to reach an agreement despite the economic damage wrought by the lowest prices since 2003. Long-standing obstacles remain -- Saudi Arabia’s desire to defend market share, Russia’s inability to cut production in winter months -- and analysts say talk of a deal probably reflects the hope of producers in pain rather than the expectation of concrete action.

The two countries’ opposing views on Syria, where Russia is President Bashar Al-Assad’s closest ally and Saudi Arabia wants him gone, present another significant diplomatic obstacle.

"It will not happen -- everybody is winking, hinting," said Kamel al-Harami, an independent oil analyst and former executive of state-owned Kuwait Petroleum Corp. "The Saudis won’t do it without the Russians. Unless Russia accepts to cut, I don’t see it happening.”

Regardless of how this plays out, it appears that we've seen global crude oil crest. From here on out, global production will start to recede. Fundamentals alone will bring supply / demand into balance by the middle of next year, 2017. Between now and then Iran isn't going to increase production all that much. There will be a lot of talk but oil companies don't have the cash or desire to spend whatever cash they have by actively drilling in Iran. They will start negotiating with Iran, but new production, unlikely. US production will continue to decline, albeit slowly. So it really comes down to Russia and Saudi Arabia, doesn't it? There's not much reason for "OPEC" to convene an emergency meeting; for all intents and purposes, "OPEC" is Saudi Arabia. Looking at the graph at this post, my hunch is both countries, Russia and KSA, agree to cut production by one million bopd. Saudi Arabia will save "face" by convening an OPEC meeting, to make it look like it was a committee decision, and not a unilateral capitulation. Timing? Before Memorial Day, 2016.