Iran’s Organization of the Petroleum Exporting Countries envoy on Wednesday said his country will not freeze its oil production levels, snubbing a proposal that was agreed by four other countries a day earlier, according to a media report.
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Oil prices were higher on Wednesday morning as OPEC oil ministers traveled to Iran to talk about a possible production freeze between global oil producers.
But traders were encouraged by closed-door talks in Tehran by Iran’s oil minister with his counterparts from Iraq, Venezuela and Qatar.
“The market needs a cut, not a production freeze”, PVM analyst David Hufton said.
“We have repeatedly said that Iran will increase its crude output until reaching the pre-sanctions production level”, Asali was quoted as saying.
Venezuela, which has the world’s largest oil reserves, has suffered enormously as the price of oil has crashed from above $90 a barrel two years ago to below $30 now.
“I’m pricing between $35 and $45 for Brent by summer, as we still have a daily surplus of up to 1.7 million barrels of oil to contend with”, said Phil Davis, an independent crude trader at PSW Investments.
The agreement was broadly seen as more a thought experiment than potential reality, at least by investors and analysts: While Tehran would benefit from higher oil prices, it’s also eager to reclaim market share and revenue it lost while under global sanctions for its nuclear weapons program.
US crude jumped $1.06 shortly after Asian markets opened, and was trading up 77 cents at $31.43 a barrel as of 6.46 p.m. ET, up 2.5 percent.
But Iran has suffered even heavier losses because the sanctions closed its access to much of the world market.
Iran, which was the second-biggest producer in Opec before sanctions were intensified in 2012, is seeking to boost output by one million barrels a day and regain market share.
“It could pave the way for further action to be taken should the likes of Saudi Arabia, other OPEC members and Russian Federation deem it necessary”, FGE said. However, Iran’s oil production was significantly impacted, dropping by over 15%.
The January freeze will do little to pull markets sharply way from the supply side, so Wednesday’s surge in prices may be a psychological reaction to the meetings in Tehran.
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The price of oil began falling in mid-2014 as surging output from OPEC, Russia and US shale producers outpaced demand.
