Opec tries to cajole Iran over output freeze

A worker checking an oil pipe valve outside the city of Kogalym, Russia. The freeze plan has so far failed to push up oil prices, due to concerns Iran would not take part and that a deal would do little to ease the global glut, as it would still allo
A worker checking an oil pipe valve outside the city of Kogalym, Russia. The freeze plan has so far failed to push up oil prices, due to concerns Iran would not take part and that a deal would do little to ease the global glut, as it would still allow Russia and Saudi Arabia to keep pumping at near record levels.PHOTO: REUTERS

ANKARA/DUBAI • The search for a grand bargain among oil producers shifted to the Iranian capital yesterday as Venezuela and Qatar started talks with Iran and Iraq to try to expand an agreement to freeze crude production to shore up prices.

Talks between Iranian Oil Minister Bijan Zanganeh and his counterparts from Iraq, Qatar and Venezuela began yesterday, as the fellow Opec countries tried to persuade Teheran to join the first global oil pact in 15 years, aimed at containing the global oil glut.

Iran is the major obstacle to the first joint Opec and non-Opec deal on Tuesday, in which Saudi Arabia and Russia tentatively promised to freeze production at January levels, which also depends on the cooperation of other producers like Qatar, Kuwait, the United Arab Emirates and Venezuela.

The freeze proposal was aimed at tackling a growing oversupply and helping prices recover from their lowest in over a decade.

Iran has pledged to increase output sharply to regain market share lost during years of sanctions imposed over its nuclear programme.

"Asking Iran to freeze its oil production level is illogical ... when Iran was under sanctions, some countries raised their output and they caused the drop in oil prices," Iranian Opec envoy Mehdi Asali was quoted as saying by the Shargh daily newspaper yesterday. "How can they expect Iran to cooperate now and pay the price?" he said.

The freeze plan has so far failed to push up oil prices, due to concerns Iran would not participate and that a deal would do little to ease the global glut as it would still allow Russia and Saudi Arabia to keep pumping at near record levels.

Venezuelan Oil Minister Eulogio Del Pino, Iraqi Oil Minister Adel Abdel Mahdi and Qatari Energy Minister Mohammad bin Saleh al-Sada huddled in a meeting yesterday to discuss the issue. An Iraqi official said his country was prepared to back the plan.

"Iran and Iraq are critical to any agreement because they are the countries with plans to boost output," said Barclays analyst Miswin Mahesh in London.

"Without their cooperation, any output freeze from other producers - who are already close to the top of their bandwidth - won't have a major impact."

The plan on holding production steady is among some of the ideas oil-producing countries have been floating for months, as oil prices flirted with the US$30 a barrel level. Venezuela has been especially vocal about managing production, as its economy - critically linked to the prices of oil - is in disarray.

"It is a positive step in the right direction in a transition period," said a Persian Gulf oil official on the condition of anonymity on Tuesday. "The main driver is prices going below US$30 a barrel."

But, markets were lukewarm on the plan. Oil prices initially surged above US$35, but details of the deal prompted a price pullback.

"The market does not need a freeze. It needs a reduction," said Strategic Energy and Economic Research president Michael Lynch. "They are not offering anything like that."

REUTERS, NEW YORK TIMES

A version of this article appeared in the print edition of The Straits Times on February 18, 2016, with the headline 'Opec tries to cajole Iran over output freeze'. Print Edition | Subscribe