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Push for oil output freeze stalls amid Saudi Arabia-Iran standoff Deal to freeze oil output in balance amid Saudi Arabia-Iran standoff
(about 5 hours later)
A meeting between Opec and non-Opec oil producers to discuss a freeze in output has run into last-minute trouble in Qatar over what looked like a new spike in tensions between Saudi Arabia and Iran, according to sources. A landmark agreement designed to buoy the price of oil is in the balance on Sunday night as the world’s major producers struggle to finalise their plans to freeze production.
In an attempt to rescue a deal to bolster the flagging price of crude, oil ministers met with the Qatari emir, Sheikh Tamim bin Hamad Al Thani – who was instrumental in maintaining levels of output. The first deal in 15 years was reported to be running into difficulty after Saudi Arabia – the largest exporter of oil – demanded that Iran join in an agreement to freeze output.
According to sources, Saudi Arabia said it wanted all Opec members to attend talks, despite insisting earlier on excluding its regional arch-rival Iran because Tehran had refused to freeze production. Iran has been reluctant to agree hold back on oil production while it attempts to return its market share to pre-sanction levels.
“The Saudis changed everything early this morning,” an Opec source said. “They want all Opec members to join first.“ The meeting in Doha had been called on Sunday for 18 countries to sign off on a deal that would helped to put a floor on the price of crude oil which, at $45 a barrel, has risen 60% from its lows in January.
Failure to reach a global deal – the first in 15 years between Opec and non-Opec nations – would signal a renewed battle for market share between key producers and likely halt the recent recovery in prices. But Reuters quoted sources saying that Saudi Arabia wanted all Opec members to attend talks, despite insisting earlier on excluding Iran, its politcal rival in the region, because Tehran had refused to freeze production.
Brent oil has risen to nearly $45 a barrel, up 60% from lows in January, on optimism that a deal would help ease the supply glut. If a deal cannot be struck, it is possible that recent rise in the price of oil will stall.
Saudi Arabia has taken a tough stance with Iran, the only major Opec producer to have refused any freeze. Tehran says it needs to regain market share after the lifting of international sanctions against it in January. Economists at French bank Société Générale said: “When it comes to oil, the principle of Goldilocks applies in full. Too low a price raises fear of a vicious circle of default, spillover to bank balance sheets, eroding financial conditions and a new headwind for the real economy.
Deputy crown prince Mohammed bin Salman told Bloomberg that the kingdom would restrain its output only if all other major producers, including Iran, agreed to do likewise. “Too high a price, on the other hand, erodes the welcome boost to purchasing power. But, if higher oil prices are driven by stronger demand, then this is good news.”
More than a dozen nations inside and outside the Organization of the Petroleum Exporting Countries have officially confirmed they would attend the meeting in Doha but the role of Iran remains key. They noted that the recent report by the International Energy Agency had warned that mere production freeze would have limited impact on physical oil supply.
“We have told some Opec and non-Opec members like Russia that they should accept the reality of Iran’s return to the oil market,” Iran’s oil minister, Bijan Zanganeh, was quoted as saying on Saturday. “If Iran freezes its oil production ... it cannot benefit from the lifting of sanctions.” Even so, expectations had been high before the Sunday meeting that a deal could be struck between Opec and non-Opec oil producers to hold output at January’s levels until October. Reuters was reporting that producers were instead agreeing to freeze oil production at “an agreeable level” as long as all Opec countries and major exporting nations participated.
A draft agreement circulating in Doha and seen by Reuters said countries’ average oil production in each month should not exceed January 2016 levels. The freeze would last until October, when producers would meet again in Russia to review any deal. “If there is no deal today, it will be more than just Iran that Saudi Arabia will be targeting. If there is no freeze, that would directly affect North American production going forward, perhaps something Saudis might like to see,” Natixis oil analyst Abhishek Deshpande told Reuters.
Although a freeze would be a significant step for oil producers, it would have only a limited impact on global supply with the market unlikely to rebalance before 2017, the International Energy Agency said on Thursday.