Saudis, Russians aim to fix oil prices by freezing output

Saudi Arabia and Russia, world’s two top oil producers, announce that they have reached agreement on freezing oil output levels in order to stabilise oil prices saying other producers including Iran should follow suit

Photo by: Reuters (Archive)
Photo by: Reuters (Archive)

Russia's President Vladimir Putin and Rosneft CEO Igor Sechin attend a signing ceremony at the St. Petersburg International Economic Forum 2014 (SPIEF 2014) in St. Petersburg in this May 24, 2014 file photo.

Top oil exporters Russia and Saudi Arabia agreed on Tuesday to freeze output levels but said the deal was contingent on other producers joining in, a major sticking point for Iran, which is absent from the talks and is determined to raise production.

The Saudi, Russian, Qatari and Venezuelan oil ministers announced the proposal after a previously undisclosed meeting in Doha - their highest-level discussion in months regarding joint action to tackle the growing oversupply of crude oil and help prices recover from their lowest levels in more than a decade.

The Saudi Oil Minister, Ali al Naimi, said freezing production at January levels - near record highs - was an adequate measure and he hoped other producers would adopt the plan. Venezuela's Oil Minister Eulogio Del Pino said more talks would take place with Iran and Iraq on Wednesday in Tehran.

"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.

Saudi Arabia's Oil Minister Ali al-Naimi gestures as he attends a joint news conference with Russia's Energy Minister Alexander Novak, Qatar's Energy Minister Mohammad bin Saleh al-Sada, and Venezuela's Eulogio del Pino in Doha, Qatar Feb. 16, 2016.

Oil prices jumped to $35.55 per barrel after the news about the secret meeting but later pared gains to trade below $34 as expectations for an immediate deal faded.

Iran, Saudi Arabia's regional arch rival, has pledged to increase output in the coming months as it looks to regain market share lost after years of international sanctions, which were lifted in January following a deal with world powers over its nuclear programme.

The output from Saudi Arabia and Russia - the world's two top producers and exporters - is near record highs making an agreement tricky since Iran is producing at least 1 million barrels per day below its capacity and pre-sanctions levels.

"We think other producers need to freeze straight away including Iran and Iraq. We believe this step is meant to stabilise the market," said Qatar's Oil Minister Mohammed al Sada.

Iraq has long said it expected its production to increase this year but last month it said it was ready reduce its fast-growing output if all OPEC and non-OPEC members agreed.

Iran Keen To Boost Output

The meeting came after more than 18 months of declining oil prices, knocking crude below $30 a barrel for the first time in over a decade from as high as $115 a barrel in mid-2014.

The slump was triggered by booming US shale oil output and a decision by Saudi Arabia and its OPEC Gulf allies to raise production to fight for market share and drive higher-cost production out of the market.

Saudi Arabia has long insisted it would reduce supply only if other OPEC and non-OPEC members agreed, but Russia, the No.2 exporter, has said it would not join in as its Siberian fields were different from those of OPEC.

The mood began to change in January as oil prices fell below $30 per barrel.

While Venezuela has been the hardest-hit producer, current oil prices are a fraction of what Russia needs to balance its budget as it heads towards parliamentary elections this year. Saudi finances are also suffering badly, running a $98 billion budget deficit last year, which it seeks to trim this year.

But while talking about potential cooperation with OPEC, Russia raised its output to a new record high in January.

"Even if they do freeze production at January levels, you have still got global inventory builds which are going to weigh on prices," said Energy Aspects' analyst Dominic Haywood. 

"So whilst it's a positive step, I don't think it will have a huge impact on supply/demand balances, simply because we were oversupplied in January anyway," said Haywood. 

TRTWorld, Reuters