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Saudi Arabia sees output freeze as trust-building

16 Feb 2016 18:54 GMT
Saudi Arabia sees output freeze as trust-building

London, 16 February (Argus) — Saudi Arabia wants Opec and non-Opec producers to commit to an oil output freeze at January levels to build up trust among producers and give them time to assess the impact of supply constraint on the market.

Oil ministers from Saudi Arabia, Russia, Qatar and Venezuela agreed in Doha today to champion a production freeze by Opec and non-Opec producers at January levels, if Iran, Iraq and other producers join in.

"Let us freeze first and see if there is a will among everybody to co-operate in such a freeze. Let us see the effect of that freeze. If it is sufficient to create a better psyche for the market, and the market stabilises and improves, fine. If not, at least we have a good level of trust among us," an Opec delegate who attended the meeting said.

Saudi oil minister Ali Naimi, Qatari oil minister Mohammed Saleh al-Sada, Russian oil minister Alexander Novak and Venezuelan energy minister and state-owned oil company PdV chief executive Eulogio Del Pino envisage the output freeze at January levels starting in March, if other producers agree to it, the Opec delegate said.

"We are giving everybody time for consultations with the others," the delegate said. Al-Sada and Del Pino will meet Iranian oil minister Bijan Namdar Zanganeh and Iraqi oil minister Adel Abdul Mahdi in Tehran tomorrow, Russia will contact non-Opec Kazakhstan and Azerbaijan, and Saudi Arabia has been in contact with non-Opec Oman, he said.

A co-ordinated cut in production is seen as unrealistic at this stage, he said. "Instead of talking about other ambitious measures, let us see how people are going to commit to the idea of a cap," he said. Without a supply freeze, oil exporters will continue to add to production, the Opec delegate said.

"Once we verify through secondary sources that everybody has discharged their commitment of not increasing production above where it was in January, and an assessment of the market is made to see if it improves or is expected to improve, fine, we continue. If not, we look at other options," he said.

"But at least you have validated a good, serious embarkation point, that at least there are people who have made a commitment not to increase while you are holding your production."

Zanganeh has already rejected the proposal, saying Iran plans to boost its exports to regain its pre-sanctions market share.

Iran's position makes the more ambitious idea of a co-ordinated cut in Opec and non-Opec production less likely to succeed than a freeze. "Why should we talk about a cut if others are not even willing to freeze? That is the catch here," the Opec delegate said.

Saudi Arabia and other producers promoting an output freeze acknowledge that Iran "will say we cannot agree to cut because we have to get back our market share".

Tehran aims to boost crude exports by 500,000 b/d now that US and EU nuclear-related oil sanctions have been lifted, and then to add another 500,000 b/d later this year. This would take its crude output close to 4mn b/d from 2.9mn b/d last month. The Doha proposal could isolate Iran if it resists a co-ordinated freeze in oil supply and points to other producers' earlier rises in production, while others say they will cap output.

Saudi Arabia has boosted crude production by 550,000 b/d over the past year, reaching 10.23mn b/d in January. And Iraq has added 640,000 b/d to its crude output over the same period, hitting a record level of 4.27mn b/d last month. Russia pumped 10.83mn b/d in January, a post-Soviet record and up by 160,000 b/d from a year earlier.

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