Oil price up as Saudi Arabia, Russia agree freeze

Saudi Arabia has provisionally agreed with Russia to freeze oil output at January levels, in a co-ordinated move to reduce a supply glut and shore up prices.

After more than 15 months of opposition to unilaterally cutting oil supplies, Saudi Arabia’s powerful oil minister Ali al-Naimi said the agreement between some of the world’s major producers to freeze output should be enough to stabilise the market, which has been hit by a 70 per cent slide in prices.

The announcement followed a closed-door meeting in Doha between Opec powerbroker Saudi Arabia and Russia, the largest exporter outside the cartel, as well as Venezuela and Qatar. News of the meeting only leaked late last night, surprising oil markets and sending prices up by as much by 6 per cent on Tuesday morning.

“Freezing now at the January level is adequate for the market, we believe,” Mr Naimi said, according to Reuters.

“We recognise today the supply is going down because of current prices. We also recognise that demand is on the rise.”

Alexander Novak, Russia’s energy minister, said in a statement following the meeting: “As a result of the meeting, four countries — Russia, Saudi Arabia, Qatar and Venezuela — are ready to freeze oil production at the level of January, if other producers join this initiative.”

Qatar’s energy minister Mohammad bin Saleh al-Sada, who hosted the meeting, said the deal was still contingent on other major producers agreeing to join in, which could complicate efforts.

Saudi Arabia, Opec’s de facto leader, has consistently said it will not restrict output without the largest producing countries also curbing production, including those inside the cartel like Iran and Iraq, as well as big producers outside the group like Russia.

Iran has repeatedly said it will revive its production and exports after the lifting of sanctions against its oil industry last month. This week it loaded three tankers to bring its crude back to Europe for the first time since 2012.

Political tensions are high between Saudi Arabia, Iran and Russia over the civil war in Syria, with Tehran and Moscow propping up the Assad regime, while Riyadh backs opposition forces.

Suspected Russian missile strikes hit three hospitals in northern Syria on Monday, medics and activists said, threatening a fragile ceasefire plan for the country. Saudi Arabia has threatened to enter the war where it sees Russia and Iran targeting anti-government forces it has backed.

Saudi Arabia and Iran are also on opposing sides in the war in Yemen.

Saudi Arabia has led Opec in keeping production high to try and preserve its market share and squeeze out higher cost producers. Iraq production has also surpassed previous highs.

Moscow, which had previously been broadly opposed to output cuts, appears to have come round to at least limited action. Russia’s production hit a post-Soviet high in January but output for the whole of 2016 was not expected to rise beyond 2015 levels. Some Russian companies had indicated they would be willing to participate in production cuts.

US shale output, which surged in the first half of this decade, has so far proved surprisingly resilient to lower prices, though many smaller independent producers are facing financial difficulties this year.

Globally, the oil price slide has resulted in investments cuts by oil majors of almost $400bn as companies cut back drastically on future plans.

Brent crude oil, the international benchmark, pared gains after the announcement to trade up 3 per cent at $34.33 a barrel by 9:29 GMT, having earlier hit a two-week high of $35.55. Last month prices slumped to $27.88 a barrel, the lowest since 2003.

US benchmark West Texas Intermediate was up 2.5 per cent at $30.12 a barrel, having hit a near 13-year low of $26.05 a barrel last week.