In a sign of tentative cooperation among major oil producers, Qatar, Russia, Saudi Arabia and Venezuela announced a plan on Tuesday to freeze output at current levels, a move intended to help bolster energy prices.

The plan, albeit hardly concrete, reflects the troubled state of the oil industry.

With prices having recently slipped to new lows, major oil producers, particularly in the Organization of the Petroleum Exporting Countries, are trying to calm the markets with talk of a deal. But the proposal gives countries a potential out, a big reason oil prices gave up their initial gains on Tuesday.

While speculation focused for months on production cuts, the talk now centers on holding production steady. Even that would be helpful in a market where countries have been steadily ramping up production to record levels.

It is also symbolic that Saudi Arabia and Russia are now presenting a united front on oil. The two countries are geopolitical rivals, backing opposite sides in the Syrian civil war.
While major oil-producing countries have been floating ideas to the markets for months, divisions are heating up, as oil prices flirt with $30 a barrel.

Venezuela has been especially vocal about managing production. The country’s economy, which is critically linked to the prices of oil, is in disarray and its leadership has little financial backup.

Now, it appears to be getting support from Saudi Arabia and Russia. While such big players are feeling the pain, they are in better shape, making it easier to weather the price weakness.

“It is a positive step in the right direction in a transition period,” said a Gulf oil official who spoke on the condition of anonymity because of the delicate nature of the talks. “The main driver is prices going below $30 a barrel, which was very disturbing.”

He added that it was important that four major oil powers, Saudi Arabia, Russia, Venezuela and Qatar, were involved in the discussions. There is a “clear road map” of what countries to approach next, he said, an effort that could lead to a more formal agreement on production.

But the producers are not committing to a deal, highlighting the difficulty of the process. The four countries said they would freeze their output at January levels only if other major exporters did the same — and that is hardly an easy sell.

Iran has staked out a policy of increasing oil exports now that sanctions have been lifted as part of its nuclear deal, and Iraq has a longstanding policy of seeking to ramp up production regardless of OPEC price-stabilizing policies. And Russia, which is not a member of OPEC, has historically resisted any binding coordination with the OPEC cartel to bolster global oil prices.

“The four countries — Russia, Saudi Arabia, Qatar and Venezuela — are ready to freeze oil production at January levels if other producers join this initiative,” the Russian Ministry of Energy said in a statement issued after the talks.

The markets were lukewarm on the plan. Oil prices initially surged above $35.50 a barrel on discussion of a deal. But details prompted a pullback in prices, which dipped below $34.

“The market does not need a freeze. It needs a reduction,” said Michael Lynch, president of Strategic Energy and Economic Research in Massachusetts. “They are not offering anything like that.”

He added that the plan announced on Tuesday was in the early stages. “People are talking and admitting to concerns about price levels,” he said.

Read more: http://www.nytimes.com/2016/02/17/business/energy-environment/opec-...

Views: 405

Reply to This

Replies to This Discussion

Production freeze, then reduction. Let's geaux! 

EH

From what I have heard the "freeze" is at maximum current levels with no guarantee that there will not be cheating.  And Iran says great, except we are going to continue to ramp up to 800,000 barrels of oil per day.  So what does this freeze really mean.  Nothing.  Just hype to try to get the price of crude up without doing anything different.  It is all "me too but" which means there really is no agreement on anything.  So do not get your hopes up.  The bad news is for the marginal producer and the good news is for the on the street user.  We are in the winter of production and there is no spring coming.  So do not get your hopes up.

I agree with William.  Even a modest reduction in global production will have little positive impact on prices at this point.  In addition to Iran, offshore GOM production is projected to increase and global demand to be stagnant or slightly reduced.  The cut in production required to move the needle is far beyond the willingness of OPEC and/or Russia at this point.  The only folks excited about this OPEC/Russia agreement are traders.  The needle doesn't have to move far for speculators to make a modest profit.  They overstate and spin any seemingly positive news regardless of how minor.

RSS

© 2021   Created by Keith Mauck (Site Publisher).   Powered by

Badges  |  Report an Issue  |  Terms of Service