“The latest deal – an agreement with Russian Federation to cap oil output at January levels if they are joined by other large producers – will not rebalance the oil market immediately”. “One Iranian spokesman, Bijan Zanganeh, pointed to the increased production by other countries to 10 million barrels a day and “…we should freeze ours at 1 million barrels – this is a laughable proposal”.
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Oil prices fell 4 percent on Tuesday after Saudi Oil Minister Ali Al-Naimi ruled out any production cuts, restating the kingdom’s rationale for maintaining output was that demand would absorb excess crude that has crushed prices over the past 20 months.
Just minutes before Al-Naimi started speaking, Iran appeared to discard its initial cautious welcome of the Doha deal.
The falls were a result of squabbling among members of the Organisation of the Petroleum Exporting Countries (OPEC) to freeze or cut production and rein in overproduction that has pulled down prices by 70 per cent since mid-2014.
He added: “Saudi oil minister said the country will not reduce output, while Iran said the Saudi-Russia pact is “ridiculous” amid plans to raise Iranian oil output”. Both contracts fell more than 5% the previous day. “Cutting low-priced production to subsidize higher-cost supplies only delays an inevitable reckoning”, he said.
“A freeze is the beginning of a process”.
“The freeze I’m sure will give people in the market some hope, that something will happen and it will happen – but we are not banking on cuts because there is less trust”, al-Naimi said.
Oil markets have a “huge oversupply” that will take “months and years” to balance out, Al-Amri said.
April Brent crude oil futures on London’s ICE Futures exchange dropped by US$1.42, or 4.1%, to settle at US$33.27 a barrel.
Nigeria, Africa’s biggest oil producer, has been suffering from a slump in crude prices that has eroded vital oil revenues and hammering its currency.
“And today we’re selling off far stronger than we really should after (Saudi Oil Minister Ali) Al-Naimi has a similar tone that we’ve heard from him over the past year”.
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“Not many countries are going to deliver” even if they promise supply curbs, al-Naimi said. “We don’t want to, but if we have to, we will”, he said. “The pace of production declines in the US right now is simply not enough to absorb the global production surplus that will likely only get worse with Iran set on continuing to increase output”. If U.S. crude futures drop below $31.30 a barrel, there may another downward leg, said Zahir, adding that crude stockpiles are expected to build as refineries shut for spring maintenance.
