Saudi, Russia agree to freeze oil production

Saudi Oil Minister Ali Al-Naimi says his country, along with Russia, Qatar and Venezuela have agreed to hold output at January level; talks with Iran, Iraq to follow

Top global oil exporters, including Russia and Saudi Arabia agreed on Tuesday to freeze output to tackle a global glut.
Top global oil exporters, including Russia and Saudi Arabia agreed on Tuesday to freeze output to tackle a global glut.

Top global oil exporters, including Russia and Saudi Arabia agreed on Tuesday to freeze output to tackle a global glut.

However key stakeholders at the meeting said the deal was contingent on other producers, with Iran absent from the meeting and planning to ramp up shipments.

The Saudi, Russian, Qatari and Venezuelan oil ministers visited Doha for a previously undisclosed meeting - their highest-level discussion in months on joint action to help prices recover from their lowest in more than a decade.

The Saudi minister, Ali al-Naimi, said freezing production at January levels was an adequate measure and new steps to stabilise the market could be considered in the next few months.

He said he hoped other producers would adopt the proposal, while Venezuela's Oil Minister Eulogio Del Pino said more talks would take place with Iran and Iraq on Wednesday (tomorrow).

“Not quite a production cut but the news will be a welcome respite for Saudi and other Gulf nations, who had been reeling from the oil price plunge since June 2014,” Muhamad Fadhil, regional manager for ICIS MENA, told arabianoilandgas.com.

“High cost producers such as Venezuela and Nigeria will also be breathing a sigh of relief at least for now,” Fadhil said.

Other analysts seemed more optimistic about Saudi Arabia’s influence over global oil and gas producing countries in getting them to at least freeze their oil output.

“Although Saudi may have now agreed to freeze its oil production at January levels it would still take other OPEC and Non-OPEC producing countries to reduce production for an overall balance in supply and demand,” Amrik Sembi, head of Liquid and Bulk Commodities, at OpenLink, commented on the news.

Iran has pledged to raise supply by 500,000 barrels per day in the months to come, as it looks to regain market share lost after years of international sanctions, which were lifted in January.

The Doha meeting came after more than 18 months of declining oil prices, knocking crude below $30 a barrel for the first time in over a decade.

The slump has been longer and deeper than anyone predicted, and the mood may be shifting among producers that have been determined to defend market share rather than prices.

Within the Organisation of the Petroleum Exporting Countries is a growing consensus that a decision must be reached on how to prop up prices, Nigerian Oil Minister Emmanuel Ibe Kachikwu told Reuters last week.

Much has changed since OPEC's fractious meeting in early December, the last big gathering of key oil ministers, when members "were hardly talking to one another. Everyone was protecting their own positional logic," Kachikwu said.

While Venezuela has been the hardest-hit major producer, oil below $30 is a fraction of what Russia needs to balance its budget as it heads towards parliamentary elections this year. Saudi finances are also suffering badly, running a $98bn budget deficit last year, which it seeks to trim this year.

“Whether this output freeze will lead to sustained oil prices remains to be seen. In fact, this rally could be shortlived due to a global supply glut of crude. Iran, which is also part of OPEC, has pledged to increase its output now that sanctions are lifted. Let’s not forget US crude stockpiles are at record highs, exacerbating supply concerns,” Fadhil told this website.

“In addition to the oversupply of crude, there are large inventory stocks which would hit the market prior to any real recovery in the crude price. It will take both a combination of the reduced production and reduction of the current inventory levels before any real recovery in oil price will occur,” Sembik said.

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