- Saudi-Russia pact contingent on other major producers joining
- Iran Minister doesn't say if nation will keep boosting output
Iran supported an accord by Saudi Arabia and Russia to steady global oil markets by capping their supply, without saying whether it would curb its own production.
Iran backs any measures to stabilize markets including the output freeze agreed by the world’s two largest crude producers Tuesday, Oil Minister Bijan Namdar Zanganeh said after talks with fellow OPEC members Qatar, Iraq and Venezuela Wednesday, according to a report from Oil Ministry news service Shana. While Russia and Saudi Arabia said the deal hinges on cooperation from other major producers, Zanganeh didn’t comment on whether he would deviate from plans to boost production after international sanctions were removed last month.
“If Iran’s not part of the deal, it isn’t worth much,” said Eugen Weinberg, head of commodity markets strategy at Commerzbank AG in Frankfurt. “After fighting to end sanctions for years and finally being free of them, why would Iran choose to put sanctions on themselves by freezing their production?”
More than a year since the Organization of Petroleum Exporting Countries decided not to cut production to boost prices, oil remains about 70 percent below its 2014 peak. Supply still exceeds demand and record global oil stockpiles continue to swell, potentially pushing prices below $20 a barrel before the rout is over, Goldman Sachs Group Inc. said last week. Merely freezing production won’t succeed in curbing the glut, according to BNP Paribas SA.
Full implementation of the production freeze remains unclear because Saudi Arabia and Russia said their commitment in Doha depended on other producers joining in. The energy ministries of Russia, Qatar, Saudi Arabia and Venezuela didn’t immediately respond to requests for comment.
Iran, which was the second-biggest producer in OPEC before sanctions were intensified in 2012, is seeking to boost output by 1 million barrels a day and regain market share. The nation should increase production by 500,000 barrels a day by March 20, the end of the Iranian calendar year, Shana reported on Wednesday, citing Roknoddin Javadi, managing director of National Iranian Oil Co.
Oil extended gains following the end of the meeting. Brent crude, the international benchmark, rose 7.1 percent to $34.46 a barrel on the London-based ICE Futures Europe exchange at 4:32 p.m. local time.
Iraq already increased production 70 percent in the past five years as investment flowed into its industry after years of conflict and neglect. Output reached 4.35 million barrels a day in January, according to the International Energy Agency. It aims to pump 6 million barrels a day by the end of the decade.
According the IEA, Saudi Arabia produced 10.2 million barrels a day in January, below the most recent peak of 10.5 million barrels a day set in June 2015. Russia produced nearly 10.9 million barrels a day in the same month, a post-Soviet record, according to official data. Venezuela pumped 2.4 million barrels a day and Qatar produced 680,000, according to the IEA.
Unless producers agree to cut their output, the global oversupply will persist, said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London.
The Doha accord was likely a token gesture from Saudi Arabia to Venezuela, which faces “deep financial pain” from oil’s slump and lobbied hard prior to Tuesday’s agreement, Tchilinguirian said.
“Saudi Arabia is paying lip service to Venezuela’s efforts after they pushed so intensively,” said Tchilinguirian. “Does this change the supply-demand situation? No. By freezing at the high-water mark, you’re entrenching the surplus.”