Saudi Arabia and Russia agree to freeze oil output

Energy and Industry Mohammed Saleh al-Sada during a press conference in Doha on Feb 16.
Energy and Industry Mohammed Saleh al-Sada during a press conference in Doha on Feb 16. PHOTO: EPA

DOHA • Top oil exporters Saudi Arabia and Russia have agreed to freeze output at January levels to counter the slump that has pummelled economies, markets and companies.

But the preliminary deal, which does not include Iran, dashed hopes among price bulls for an outright cut to supply and oil pared gains, signalling that traders see no immediate end to the supply glut.

Some analysts, however, said that the pact, the first significant act of cooperation between Opec and non-Opec nations, was a step in the right direction.

"I don't think it will have a huge impact on supply/demand balances, simply because we were oversupplied in January anyway. We're just even more oversupplied now," Energy Aspects analyst Dominic Haywood said.

Announcing the deal at a news conference yesterday, Qatari energy minister Mohammad bin Saleh al-Sada said the step to fix production levels, in which Qatar and Venezuela will also participate, would help to stabilise the oil market.

Saudi Arabia said it was open to further action.

"The reason we agreed to a potential freeze of production is simply the beginning of a process over the next few months," Saudi Oil Minister Ali al-Naimi told reporters.

"We don't want a reduction in supply. We want to meet demand. We want a stable oil price."

He said the next steps would be assessed over the coming months.

Iran, Opec's fifth-largest producer, had ruled out any curbs on its oil production when the group met in December, while its neighbour Iraq continues to boost production as it recovers from years of conflict and under-investment.

Some analysts pointed out that the freeze was among countries whose production did not grow recently. "If Iran and Iraq are not a part of the agreement, it's not worth much - and even then there is still a question of compliance," said Mr Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt.

Venezuelan Oil Minister Eulogio del Pino is set to meet officials from the two nations in Teheran today to discuss the deal.

Oil prices have fallen by more than 70 per cent in the past 20 months due to near-record production.

Yesterday, Brent crude pared after a 12-day high of US$35.55 a barrel. It last traded at US$33.82, as expectations for an immediate deal faded.

Markets in Europe struggled to find firm ground, as oil companies came off earlier highs partly due to disappointment over the deal.

Wall Street, meanwhile, opened higher as oil prices traded flat.

"The freeze is the first step toward agreeing to formal cuts and I expect to see cuts by the end of the quarter," said Mr Peter Cardillo, chief market economist at First Standard Financial in New York.

BLOOMBERG , REUTERS

A version of this article appeared in the print edition of The Straits Times on February 17, 2016, with the headline 'Saudi Arabia and Russia agree to freeze oil output'. Print Edition | Subscribe