Four top oil producers agree on output freeze for stable prices

Saudi Arabia, Qatar, Russia and Venezuela on Tuesday reportedly agreed to freeze oil production at January levels if other oil-producing countries do the same.

“We will start intensive communication nearly straight away with other major producers, OPEC, non-OPEC, including Iran and Iraq”, Mohammed Saleh Al Sada, Qatar’s minister of energy and industry said.

Venezuela has recently joined with three other leading oil producers in a tentative agreement to freeze production at present levels in an attempt to stabilize prices.

“I am not at all surprised because why should Iran agree to freeze their production when everyone is operating in full capacity and they are the only (ones who) aren’t?”, said an oil analyst based in Australia.

Saudi Arabia is arguably to blame for the supply glut because, as a “swing producer”, it produces so much oil that it can shift market prices on its own. The Doha announcement evoked mixed response from the global oil market.

Sources familiar with Iranian thinking on supply said Tehran would be willing to consider a freeze once its output had reached pre-sanctions levels. City Index analyst Fawad Razaqzada said the move had disappointed the market slightly because many had hoped for a cut rather than a production freeze.

WTI may fall to below $20 a barrel as a drop in United States crude demand outweighs cutbacks in production as domestic producers shut wells, BMI Research said in a note.

Iraq’s production of oil last January was record heights with an average of 4.7 million barrels of oil, including oil coming from fields in the Kurdistan Region, exported a day.

It is created to reflate oil prices, which have sunk by about 70% from their recent peak of $116 in June 2014 thanks to oversupply as the global economy slows down.

With regards to Iran’s stance on cutting oil production, Zanganeh told Shana, an Iranian news agency, on 15 February, “It requires discussion and examination to be seen what has been their point”. Saudi Arabia is a key member of Opec while Russian Federation is not a member of the oil grouping but is the world’s largest crude oil producer.

Any positive response from Iran could buoy oil prices and thus Gulf equities, but Tuesday’s market reaction suggests the impact may be small.

“Freezing now at the January level is adequate for the market”.

Brent crude oil, which has been on a rollercoaster ride this year, hit a 12-day high of US$35.55 (S$49.81) a barrel, but later pared gains to trade below US$34.