The world's largest oil producers, including Saudi Arabia and non-OPEC member Russia, will meet Sunday in Doha, Qatar, to discuss freezing output at current levels to suppress the worldwide glut.
The oil slump began in 2014 as the market became oversupplied with crude and demand began to wane.
The increase in supply is largely due to the rise in production from the U.S. shale formation.
"If they get a deal done, this is the official end to the production war," said Phil Flynn, an energy analyst with Price Futures Group.
Soon after oil prices began to fall, the Organization of the Petroleum Exporting Countries decided to forgo a production cut at a November 2014 meeting.
The move was significant because the cartel essentially abandoned its traditional practice of adjusting production in response to prices. Instead, OPEC members began to pump out as much oil as they could to increase their market share.
It's a decision that analysts say started a price war aimed at protecting cartel members' share of the market against the rise of U.S. shale production.
And there are signs that it might be working. The cartel said earlier this week that non-OPEC production is falling more sharply than expected, including in the U.S.
The prolonged oil slump has taken its toll on U.S. energy companies, which have cut spending plans, pulled drilling rigs, deferred projects and laid off employees in response to prices.
Murphy Oil Corp. of El Dorado reduced its 2016 spending plans by 62 percent earlier this year. The cuts followed a 30 percent reduction in spending and a 20 percent cutback in employees in 2015.
Prices, which are down more than 60 percent since 2014, have recently seen a recovery since plunging below $30 a barrel in January.
On Friday, however, doubts that the outcome of the meeting will curtail the oil glut began to weigh down the market. West Texas Intermediate crude fell 2.8 percent to $40.36 in New York, and Brent crude fell 1.7 percent to $43.10 in London.
"The OPEC meetings will result in nothing of substance," Omar Al-Ubaydli, program director for international and geopolitical studies at the Bahrain Center for Strategic, International and Energy Studies, said in an email.
"Output freezes are of virtually no significance when those committing to them are producing at capacity or close to capacity, which is the case for many oil producers at the moment," he said. "Whenever the stakes are this high, expect a lot of rhetoric from oil producers and analysts as they jockey for position."
Skepticism about the meeting ranged from the uncertainty that the major oil producers would be able to reach an agreement to their willingness to adhere to it.
And then there's the fear that even if they reach an agreement to freeze production, it wouldn't help the glut because the market is still oversupplied by at least 1.25 million barrels.
"I think what we are going to see is some very tepid agreement from many of the countries to not raise production," said Michael Lynch, president of Strategic Energy and Economic Research Inc.
"If they have a friendly meeting and even if the practical aspects of the agreement are not big, as long as it seems like they are cooperating, that will give some people some confidence that if prices do go back down they will act," he said.
A lot of the uncertainty surrounding the Doha meetings centers on Iran and whether Saudi Arabia would agree to freeze production with cooperation from its regional rival.
Iran is reluctant to join an output deal, and on Friday news reports said the country's oil minister wouldn't be at Sunday's summit.
With the removal of international sanctions, Iran is looking to revive its oil industry and increase its market share by exporting more crude. The country was OPEC's second-largest producer before sanctions were implemented in 2012.
Saudi Arabia and Iran, which represent different sects of Islam, are fighting proxy wars in Syria and Yemen.
"The idea that the Saudis and Iran are going to break bread and come up with some sort of thing that gives each other some kind of leverage just really strikes me as very, very unlikely," said Tom Kloza, chief oil analyst for gasbuddy.com, which operates a price-tracking website.
Except for possibly making the market volatile on Monday, the meeting in Doha is only expected to have a minimal affect on prices or supply, making it more symbolic than anything, Al-Ubaydli said.
"The primary motivation for Saudi Arabia and others to continue acting as if these meetings will have a tangible effect is that they are grandstanding for their constituents; they want to show them that they are trying, but that it is external forces that are preventing them from securing high oil prices," Al-Ubaydli said.
While the Doha summit has drawn so much speculation, the main driver of higher oil prices will ultimately be the decline of U.S. shale production, analysts said.
"The biggest thing is the decline in U.S. shale production points towards a possible re-balance of the market later this year," Lynch said. "But it's going to take a while to work off surplus inventories."
Still to some analysts, the Doha meeting is a sign that low oil prices are not just hurting U.S. producers, but even OPEC members, including Saudi Arabia -- so much that they are willing to schedule a meeting that has the tiniest chance of setting the groundwork for future price-boosting action.
"If we get an agreement it's almost like a peace agreement," Flynn said. "You get into a situation where this could lead to a production cut down the road.
"At the end of the day, the only reason they are at the table is because they can't keep this up," he said. "Nobody is making money and they are all going bankrupt if they keep this up."
A Section on 04/16/2016
Print Headline: Oil giants explore freezing production to curtail glut, boost prices