Saudi and Russia agree oil output freeze – Kuwait welcomes deal: Iran could be obstacle

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DOHA, Feb 16, (RTRS): Top oil exporters Russia and Saudi Arabia agreed on Tuesday 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 on Wednesday 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 stabilise and improve the market,” Naimi told reporters.

“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 $35.55 per barrel after the news about the secret meeting but later pared gains to trade near $33 on concerns that Iran may reject the deal and that even if Tehran agreed it would not help ease the growing global glut.

Regain

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 programme.

“Our situation is totally different to those countries that have been producing at high levels for the past few years,” a senior source familiar with Iran’s thinking told Reuters.

Iranian Oil Minister Bijan Zanganeh also indicated Tehran would not agree to freezing its output at January levels, saying the country would not give up its appropriate share of the global oil market.

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 agreement since Iran is producing at least 1 million barrels per day below its capacity and pre-sanctions levels.

However, two non-Iranian sources close to OPEC discussions told Reuters that Iran may be offered special terms as part of the output freeze deal. “Iran is returning to the market and needs to be given a special chance but it also needs to make some calculations,” said one source.

Russian Deputy Prime Minister Arkady Dvorkovich said freezing output was not a problem for his country as he anyway expected its production to be flat this year versus 2015.

An Iraqi oil ministry source said Baghdad was also happy to freeze production if all parties agreed.

“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.

OPEC has been quarrelling for decades over output levels and Russia, which last agreed to cooperate with OPEC back in 2001, never followed through on its pledge and raised exports instead.

Meanwhile, Kuwait welcomed a deal by four oil producers including Saudi Arabia and Russia to freeze crude production in a bid to boost sagging prices.

“The state of Kuwait welcomes the Doha agreement … and affirms its compliance to freeze production at January level which is conditional to the commitment of major producers from OPEC and non-OPEC members,” acting oil minister Anas al-Saleh said in a statement. He said Kuwait’s commitment to the deal comes in support of efforts to stabilise the market.

He hoped the deal will help to support oil prices and restore market balance.

Kuwait is OPEC’s fourth largest producer, and is pumping 3.0 million barrels per day.

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