Preparing for possible rise in oil prices

Major crude producers, members as well as non-members of the Organization of Petroleum Exporting Countries met in Doha on April 17 to reach an agreement to freeze production but failed to do so. Although crude producers affected by low oil prices are eager to restrict production, countries such as Saudi Arabia and Iran seem unwilling to do that.

Freezing production means crude producers maintaining the current output rate to offset the negative impact of low prices. A free-output deal, however, may affect global petroleum prices in the short term, not in the longer term - as supply and demand in the world market will not change much because of that.

The oversupply of oil worldwide is the main reason of the low prices, and demand for oil is not expected to change in the short term because of the gloomy global economy. Besides, major crude producers are unlikely to restrict output. No country is willing to freeze its oil output unilaterally for fear of losing its market share and thus suffering further losses. For example, Saudi Arabia says it will not restrict its output unless all other crude producers do so.