The two biggest oil producers in the world last week signed an oil agreement to cooperate for stabilizing the oil prices. This is what every oil producer has been waiting for, as some sort of understanding was required to try stabilizing the oil market particularly the oil prices. The two oil producers have finally agreed in principle to freeze oil production and persuade other producers to follow suit. So far so good!
They also agreed to form joint committees to work on other details for the meeting which will be held in Algeria before the end of this month. It seems all OPEC members as well as Russia are in agreement to freeze production, and for the super producers to iron out the details in order to produce the final binding agreement.
Since last week, oil prices started stabilizing and the market began giving serious attention to the new agreement with oil prices moving towards $50 level and in anticipation of the accord. However, Iran is insisting on complying with the agreement only when its production reaches 4 million barrels target, which was its production level before international sanctions were imposed on it. It will not give in for anything short of that figure. Currently, it is short by about 400,000 barrels per day. It is unlikely to reach the required level by the end of this month, which could represent a big obstacle for the agreement.
Will Iran cause distress due to its insistence on its sole position or will all agree to allow Iran to be excluded from the agreement until it reaches its targeted figure, like the way OPEC did with Iraq? It is a known fact that such a compromise requires political decision. This is the reason why the oil market is not so optimistic about its forthcoming meeting in Algeria.
The agreement is an even by itself between the two biggest producers, which will not let go so easily. However, they all agreed to target an oil price within the range of $50 per barrel. This level is doable. On the other hand, if Iran is looking for higher figure and has $60 per barrel in mind, then it has to freeze its production along with all others.
Coming to an agreement with the political situation / settlement is clouding the relationships among the OPEC members. This makes it more difficult to reach a conclusive agreement.
It will be interesting in the coming weeks with the oil speculators in the driver seat, wheeling and dealing until the date of the meeting. In the meantime, OPEC members will be running around trying to find some comfortable zone to bury all differences and bridge the gap.
It will be difficult task, but who expected such an agreement will be reached between the two producers so soon.
By Kamel Al-Harami
Independent Oil Analyst