Four of the world’s biggest oil-producing nations moved to freeze their production Tuesday to try to halt the 70 percent drop in the price of crude because of a glut of oil on world markets.
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The Saudi minister, Mr Ali al-Naimi, said that freezing production at January levels – near record highs – was an adequate measure and he hoped other producers would adopt the plan.
Oil ministers from Saudi Arabia, Russia, Venezuela and Qatar have reached an agreement to freeze their country’s output of crude. “Our view of a trendless oil market with increased volatility between $20 a barrel and $40 a barrel, suggests that most of the negative impacts from declining oil prices are likely behind us at this point”.
Venezuelan Oil Minister Eulogio Del Pino said more talks would take place with Iran and Iraq tomorrow (Wednesday) in Tehran.
“Asking Iran to freeze its oil production level is illogical…When Iran was under sanctions, some countries raised their output and they caused the drop in oil prices…”
He added that the agreement was “the beginning of a process which we will assess in the next few months and decide whether we need other steps to stabilize… the market”.
Oil prices initially surged on Tuesday on news of the deal but early gains were wiped out by the realisation that there would be no immediate supply cuts to tackle global oversupply.
Separately, in response to news of the Doha agreement, acting deputy oil minister Masoud Hashemian Esfahani told Fars on Tuesday that Iran would “attempt to reach an agreement to make oil prices higher”, and that “cooperating with each other to reach this goal is necessary”.
Khatibi also said that unlike other producers, Iran’s oil output has decreased since 2011 due to sanctions. But even oil-rich Saudi Arabia, with some of the world’s biggest untapped oil reserves, says it has a record budget deficit.
Iran has said it wants to increase its production and exports of crude oil to one million barrel per day in two phases over roughly six months.
As CMC Markets analyst Jasper Lawler said in a note quoted by Reuters: “The output freeze is disappointing because it’s not an outright cut, and with Iran not a part of the meeting it’s still a bit far-fetched to think this is a precursor to a future cut”. Everyone knows that, at the moment, there is no alternative to oil, so looking at supply is the best way to get a correct market price. He added that this will benefit both crude exporters and consumers, and also improve the world economy.
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Shares were higher in Europe on Wednesday as oil prices stabilized and strong earnings reports from French bank Credit Agricole and Germany’s Schneider Electric helped boost sentiment.
