Russia and Saudi Arabia agree to freeze oil production output at record levels

RT
Tue, 16 Feb 2016 13:52 UTC

© Beawiharta / Reuters

The world's two biggest crude producers won't increase oil output. Besides Russia and Saudi Arabia, Qatar and Venezuela agreed to freeze production at January levels, according to Russia's Energy Ministry.

"The deal will be reached if other producers join the initiative," said Russian Energy Minister Aleksandr Novak.

OPEC members Venezuela and Nigeria had called for a meeting to discuss crude prices that have fallen over 70 percent since 2014.

Saudi Oil Minister Ali Al-Naimi said freezing output at January levels would be "adequate" however the country still wants to meet the demand of its customers.

Saudi Arabia has insisted it won't cut production unless major producers outside the cartel cooperate. Russian Energy Minister Aleksandr Novak has said cooperation is possible if other producers joined in.

However, the CEO of Russia's biggest oil producer Rosneft Igor Sechin said last week that his company would defend traditional markets and raised doubts about production cuts. "Tell me who is supposed to cut? Will Saudi Arabia cut production? Will Iran cut production? Will Mexico cut production? Will Brazil cut production? Who is going to cut?" asked Sechin.

"We are working on preserving our traditional markets and we will supply those markets with oil in a competitive battle," he added.

However, plummeting oil prices have forced producers unwilling to cut production to the negotiating table. While Venezuela has been by far the hardest-hit big crude producer, current oil prices make it difficult for Russia to balance its budget. Riyadh's budget has also taken a hit , running an official $98 billion budget deficit in 2015. IMF estimates dispute official Saudi figures, placing the Kingdom's budget deficit at $140 billion.

Speculators ruled the oil markets on Tuesday as renewed hope of production cuts sent crude prices nearly six percent higher. A sharp sell off followed on the news of the Russian-Saudi deal, but prices stayed in positive territory with Brent crude trading near $34 per barrel, and US benchmark WTI futures around $30 per barrel, as of 10:30 a.m. GMT.

"A freeze would not create an immediate U-turn but it creates a better foundation for the price recovery in the second half," Olivier Jakob, head of oil consultants Petromatrix said in a note to clients, quoted by Bloomberg.

and this is oil after those saudi/qatar headlines from doha pic.twitter.com/fAflldA8TH

— Stuart Wallace (@StuartLWallace) February 16, 2016

Comment: Iran is a sticking point as they don't want to freeze or cut oil production:

OPEC member Iran, Saudi Arabia's regional arch rival, has pledged to steeply 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 program.

"Our situation is totally different to those countries that have been producing at high levels for the past few years," a senior source familiar with Iran's thinking told Reuters.

Iranian Oil Minister Bijan Zanganeh also indicated Tehran would not agree to freezing its output at January levels, saying the country would not give up its appropriate share of the global oil market.