17 February 2016, DOHA (TSR) – Three OPEC-member countries, Saudi Arabia, Qatar and Venezuela, and non-OPEC Russia are ready to freeze oil production at January’s level if other producers do the same initiative, said Russian Energy Minister Alexander Novak after meeting with representatives of the three OPEC member countries.
The meeting in Doha on Tuesday was a discussion on potential options for tackling the supply glut because oil is currently trading at multi-year lows of around $33-$34 per barrel for benchmark Brent crude futures. Analysts say that the decision to freeze oil production volumes can be considered the first practical step towards controlling price levels, but the market reacted negatively to the agreement.
Market analysts believe this agreement is also a loss for Russian diplomacy – as a result of the deal, oil prices and the related value of the ruble began falling, according to RTBH.
Oil prices have dropped below $30 a barrel in recent months, a fall of 70 percent since 2014.
According to Platts, oil ministers Ali Naimi of Saudi Arabia, Mohammed bin Saleh al-Sada of Qatar and Eulogio del Pino of Venezuela took part in the meeting as well as Novak.
“As a result of the meeting, the four countries — Russia, Saudi Arabia, Qatar and Venezuela — are ready to maintain average volumes of crude production in 2016 at January levels and do not exceed them. The decision will be taken if other [crude] producers join the initiative,” Novak said, according to the statement.
“What is important is that, first, the oil market is currently facing oversupply, and second, Iran will not refrain from its share,” Zanganeh said in Doha.
Iran’s IRNA news agency said on Sunday the country had exported its first crude shipment to Europe since it reached a landmark deal last year with world powers.
IRNA quoted Rokneddin Javadi, Iran’s deputy oil minister, as saying the shipment, the first in five years, marked “a new chapter” in Iran’s oil industry.
Iran said in January that it planned to add to its production, which stands at 3.1 million barrels per day (bpd) despite the drop in price, and should not be blamed for further price falls. As Iranian representatives have often said, in a month Iran will be ready to increase its production volumes from 1.5 to 2 million barrels a day. In the near future tankers with Iranian oil will depart for Europe for the first time since 2012.
Javadi said Iran had already reached an agreement to export oil to France, Russia and Spain. One of them, with a volume of two million barrels, has already been purchased by the French petroleum giant Total, while the other two, with one million barrels each, will supply the Spanish company Cepsa and a Lukoil trading subdivision by the name of Litasco for processing at its Romanian plant.
Saadallah al Fathi, a former adviser to Iraq’s Ministry of Oil and former head of the Energy Studies Department, OPEC Secretariat, told Al Jazeera that freezing output at January’s levels was not going to immediately cut supplies.
“There is already too much oil on the market,” Fathi said.
“I don’t think freezing production is going to mean anything, unless other producers come into the picture. Within the next few weeks or few months I think there will be a flurry of activity to get other producers on board.”
Iran’s oil minister Bijan Zanganeh acknowledged earlier this week that some obstacles related to shipping insurance and banking remained, but said he expected these to be resolved shortly, Platts reported.
Russia, Saudi Arabia, Qatar and Venezuela announcement was mere verbal and fell short of actually signing any documents to cut production by 5 percent as was earlier anticipated.
Crude production by non-OPEC Russia hit a new all-time high of 10.878 million barrels per day in January, the fourth straight month in which production has hit a fresh record high.
Saudi Arabia’s crude production has been also running at record levels above 10 million barrels per day for nearly a year. In January, it boosted output by 100,000 barrels per day to 10.2 million barrels per day, after a dip in December, a Platts survey of OPEC and oil industry officials and analysts showed last week.
Qatar’s and Venezuela’s output have remained mainly flat at 660,000 barrels per day and 2.35 million barrels per day, respectively, in the last three months, according to Platts.
Saudi Arabia’s total losses due to oil price falls in the last year and a half amount to more than $180 billion, while Venezuela has enough liquidity for only another 2-3 months of imports, which is why the Caracas government is being forced to sell off its gold reserves.