Countdown to Doha Talks: Discordant tunes on oil freeze agreement

As oil producers from the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC members gather in Doha on April 17, 2016 for final talks on oil freeze agreement, there appears to be discordant tunes from both groups. According an estimate by Russia, the oil market is over supplied by around 1.5 million barrels per day.

Russia, Saudi Arabia, Venezuela and Qatar agreed in February to freeze production at January levels, but said at the time the deal was contingent on other producers joining in.

Oil has rallied since mid-February amid speculation that nations including Saudi Arabia, the biggest member of the OPEC, and Russia will agree to freeze output and shrink the glut that sent Brent crude to a 12-year low in January.

The April 17 meeting is aimed at cementing that agreement with other OPEC and non-OPEC producers, which could help reduce an oil glut that has driven oil prices down by around 60 percent since mid-2014.

Russia is seeking a successful result from the Doha meeting, Alexander Novak, Energy Minister said, adding that countries are discussing a freeze of oil production at January levels. According to Goldman Sachs Russian oil and condensate production will rise through 2017, even as the nation prepares for the talks. Russia, the world’s second-largest oil exporter after Saudi Arabia, was pumping at a 30-year high last month of 10.91 million barrels per day (bpd).

Doubts were cast on the likelihood of a deal after Saudi Deputy Crown Prince Mohammed bin Salman said it will only freeze output if it’s joined by other suppliers including Iran, while Kuwait has signaled a deal does not hinge on the Persian Gulf state.

Iran is determined to regain market share lost over the past few years due to sanctions over its nuclear program. Sanctions imposed on Iran in early 2012 by the United States and European Union over its nuclear programme cut crude exports from a peak of 2.5 million bpd before 2011 to just over 1 million bpd in recent years. Iran, meanwhile, plans to boost production to 4 MMbpd by the end March 2017.

Oil has jumped more than 50 percent in New York since falling to a 12-year low in February. Prices are still down by more than 60 percent from their mid-2014 peak, crimping public finances at countries like Venezuela that depend on petrodollars for most of their revenue.

Latin American oil producers seek consensus

Delegations from Latin American oil exporters Colombia, Ecuador, Mexico and Venezuela were in Quito to seek consensus over a possible output freeze or other methods to bolster international crude prices.

Ecuador’s Energy Ministry said the purpose of the meeting was to define the region’s position ahead of a meeting of OPEC and non-OPEC producers in Doha on April 17. The Ecuador meeting is the first significant sign non-OPEC producers Colombia and Mexico are involved in an effort to bolster prices amid the global glut.

Carlos Pareja, Ecuador Oil Minister said the forth-coming oil-producing countries meeting in Doha, Qatar, will not discuss output cuts.

“We are going to give a message of support,” Pareja said. Waiting for the market to balance itself would be “catastrophic,” and OPEC could discuss a “solution” at its next regular meeting.

Eulogio Del Pino, Venezuelan Energy Minister, one of the most vocal advocates of a freeze, reiterated his call for OPEC and non-OPEC nations to seek an oil price “balance.”

Kuwait has renewed optimism that OPEC and other major producing nations can reach an agreement after its governor to OPEC, Nawal al-Fezaia, said a freeze can be reached even without Iran.

Suffering more than most producers from a 60-percent plummet in oil prices since mid-2014, Venezuela and Ecuador’s leftist governments have pushed hard for the producers’ meeting in Doha.

Iran steps up offense with price discount

Iran stepped up its offense in the oil market after breaking a pricing tradition, signaling it is seeking to win market share at a time when rival producers are trying to forge a deal on freezing output. To pry away customers relishing oil that is cheaper than mid-2014 levels by more than 50 percent, the Persian Gulf state is expected to focus on pricing and boosting supply.

State-run National Iranian Oil Co. will sell the Forozan Blend in May for Asian customers at $2.43/bbl below the average of the Oman and Dubai benchmark grades. That is 3 cents lower than state-run Saudi Aramco’s price for the similar Arab Medium variety for a third month. Forozan was at a premium of 7 cents to the Saudi oil for February sales. The Iranian Heavy grade will sell in May to Asia at a discount of $2.60/bbl to the Oman-Dubai average while the Soroosh variety’s price was set at $5.65/bbl below Iranian Heavy.

Iran plans to boost crude output to 4 MMbpd, the highest level since 2008, before it will consider joining other suppliers in seeking ways to rebalance the global oil market, Oil Minister Bijan Namdar Zanganeh said, according to a report from the Iranian Students News Agency on March 14. Saudi Arabia has said it will only freeze output if it’s joined by other suppliers including Iran, while Kuwait has signaled a deal doesn’t hinge on the Persian Gulf state.

FRANK UZUEGBUNAM