Russian Federation and Saudi Arabia are considering the possibility of limiting output for three to six months, or maybe longer, RIA Novosti reported, citing Novak. Russian officials said the price for oil was just short of a level considered fair, while Riyadh said that, despite the knee-jerk market reactions to Monday headlines, there was no proposal to freeze production levels now on the table.
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The two ministers said Monday that they will act “together or in cooperation with other oil producers” and agreed to set up a “joint monitoring group” to offer recommendations to prevent price fluctuations. The Tadawul, one of the world’s most closed stock markets, is increasing global participation after allowing limited foreign direct investment last June.
Saudi Arabia led the 2014 decision by the Organization of Petroleum Exporting Countries to maintain output in the face of a rising glut in the hope that the collapse in prices would force higher-cost producers to shut down. However, with little clarity over what a deal would involve, and a statement on Tuesday by Saudi Energy Minister Khalid al-Falih that “there is no need to freeze output for now” oil futures retreated. But U.S. shale has “surprised us, and can surprise us again”, the official said.
Yet the effect of the prolonged slump in crude prices – stuck at half the levels seen two years ago – has pushed oil-market rivals to collaborate. OPEC and industry sources have said Tehran now appears to be more willing to reach an understanding with other producers.
Speculation has mounted in the past month that OPEC nations and Russian Federation may reach an agreement to freeze production when they hold informal talks in Algiers at the end of the month.
“Meanwhile, a leading expert from the Union of Oil & Gas Producers of Russia, Rustam Tankaev, suggested that the statement could be the harbinger of a new alliance, which will finally replace OPEC”. While it would be “positive” for producers to agree on limiting production, more substantial action, such as output cuts, aren’t necessary because the global oversupply is already subsiding, he said.
A freeze proposal was derailed in April over Saudi Arabia’s insistence that Iran participate.
The Kremlin in March warned a price above $50 per barrel might skew markets heavily toward the supply side as energy investors look to capitalize on the forward momentum for crude oil.
Iran has been trying to regain market share after the United States and other nations lifted nuclear-related sanctions.
Iran said it would cooperate on the freeze once its output returned to 4 million barrels per day before sanctions, a level that could be reached within two or three months.
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“The market is getting better and we noticed that the prices reflect this (improvement)”, said Falih.
