DOHA:Top oil exporters Russia and Saudi Arabia agreed yesterday to freeze output levels but said the deal was contingent on other producers joining in — a major sticking point with Iran absent from the talks and determined to raise production.
The Saudi, Russian, Qatari and Venezuelan oil ministers announced the proposal after a previously undisclosed meeting in Doha. It could become the first joint OPEC and non-OPEC deal in 15 years, aimed at tackling a growing oversupply of crude and helping prices recover from their lowest in over a decade.
Saudi Oil Minister Ali al-Naimi said freezing production at January levels — near record highs — was an adequate measure and he hoped other producers would adopt the plan. Venezuelan Oil Minister Eulogio Del Pino said more talks would take place with Iran and Iraq today in Tehran.
“The reason we agreed to a potential freeze of production is simple: it is the beginning of a process which we will assess in the next few months and decide if we need other steps to stabilize and improve the market,” Naimi said.
“We don’t want significant gyrations in prices, we don’t want reduction in supply, we want to meet demand, we want a stable oil price. We have to take a step at a time,” he said.
Oil prices jumped to US$35.55 per barrel after the news about the secret meeting but later pared gains to trade below US$34 on concerns that Iran may reject the deal.
OPEC member Iran, Saudi Arabia’s regional arch rival, has pledged to steeply increase output in the coming months as it looks to regain market share lost after years of international sanctions, which were lifted in January following a deal with world powers over its nuclear program.
“We have not yet reached our level of pre-sanctions production. So when we get there, we will be on an equal level, then we can talk,” a senior source familiar with Iran’s thinking said.
“Our situation is totally different to those countries that have been producing at high levels for the past few years.”
The fact that output from OPEC kingpin Saudi Arabia and non-OPEC Russia — the world’s two top producers and exporters — is near record highs complicates any deal since Iran is producing at least 1 million barrels per day below its capacity and pre-sanctions levels.
“The agreement (if successful) should support oil prices but there are reasons to be cautious. Not all OPEC members have signed up to the deal — notably Iran and Iraq. History would also suggest that compliance may be an issue,” said Capital Economics’ analyst Jason Tuvey.
Iraq, another major OPEC producer, also has long said it expected its production to rise further this year.
