Daily Management Review

Iran Remains a Major Roadblock to Agreed Freeze on Oil Output between Saudis and Russia


02/16/2016




Iran Remains a Major Roadblock to Agreed Freeze on Oil Output between Saudis and Russia
Bringing in some relief to the world markets, top oil exporters Russia and Saudi Arabia agreed on a deal to put a freeze on the levels of output. However the deal is still dicey as it was contingent on other producers joining in – especially Iran, which was absent from the talks. Iran, recently freed from international sanctions, is determined to raise production.
 
After a previously undisclosed meeting in Doha, the Saudi, Russian, Qatari and Venezuelan oil ministers announced the proposal. Aimed at tackling a growing oversupply of crude and helping prices recover from their lowest in over a decade, the deal could become the first joint OPEC and non-OPEC deal in 15 years.
 
Expressing hope that other producers would adopt the plan, Saudi Oil Minister Ali al-Naimi said freezing production at January levels - near record highs - was an adequate measure. More talks would take place with Iran and Iraq on Wednesday in Tehran, said Venezuelan Oil Minister Eulogio Del Pino.
 
"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.
 
Following the news about the secret meeting, oil prices jumped to $35.55 per barrel. But concerns that Iran may reject the deal resulted in the gains being lost.
 
As it looks to regain market share lost after years of international sanctions, OPEC member Iran, Saudi Arabia's regional arch rival, has pledged to steeply increase output in the coming months.
 
"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 said.
 
Iran would not give up its appropriate share of the global oil market, said Iranian Oil Minister Bijan Zanganeh indicating that Tehran would not agree to freezing its output at January levels.
 
Since Iran is producing at least 1 million barrels per day below its capacity and pre-sanctions levels and 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.
 
However Iran may be offered special terms as part of the output freeze deal, reports Reuters quoting non- Iranian sources.
 
"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.
 
"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.
 
Russia never followed through on its pledge that it last agreed on with OPEC back in 2001 and raised exports instead. This has been a stumbling block for the OPEC. The geo-political rivalry in the Middle East between Sunni Muslim power Saudi Arabia and Shi'ite Iran has also complicated any potential agreement.
 
(Source:www.reuters.com) 






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