Oil Prices Drop on Chatter Production Freeze Unlikely

A meeting between oil producers to discuss a global pact on freezing production is unlikely to take place in Russia on March 20, sources familiar with the matter say, as OPEC member Iran is yet to say whether it would participate in such a deal.

OPEC officials including Nigeria’s oil minister have said a meeting would take place in Moscow on that date, potentially as the next step in widening an agreement to freeze output at January levels struck by OPEC members Saudi Arabia, Venezuela and Qatar plus non-member Russia last month.

But the biggest roadblock to a wider deal, OPEC delegates say, is Iran. Tehran feels it should be exempt from the agreement as it wants to recover market share it lost under Western sanctions. Kuwait said on Tuesday it will commit to the deal – if all major producers including Iran do so.

“They are not agreeing on the meeting. Why would the ministers meet again now? Iran says they will not do anything,” said an OPEC source from a major producer. “Only if Iran agrees, things will change.”

The pact on freezing output has helped support oil prices, which started a slide in mid-2014 due to oversupply. Brent crude was trading above $40 a barrel on Thursday, up 50 percent from a 12-year low of $27.10 reached in January.

Some delegates are wary that if many oil producers met too soon before getting the nod from everyone, prices could weaken again if the talks ended in disarray.

“Our view is not to go there with the possibility of no agreement so as not to affect prices negatively,” said another source from a major OPEC member, referring to the proposed March 20 meeting.

OPEC’s Gulf members favor meeting in the first half of April, in Doha or another Gulf city, a Gulf delegate said last week.

Another OPEC delegate was more pessimistic, saying he expected no major progress until OPEC’s next scheduled meeting in June.


Tehran has rejected freezing its output at January levels, put by OPEC secondary sources at 2.93 million barrels per day (bpd), and wants to return to much higher pre-sanctions production.

“Tehran wanted a freeze … for them to be based on 4 million barrels per day, their pre-sanctions production figure,” said one source familiar with the discussions. A source familiar with Iranian thinking agreed.

The issue is set to be discussed this month when Russian Energy Minister Alexander Novak meets Iranian counterpart Bijan Zanganeh.

Some OPEC sources hinted that there could be a workable agreement on the table to get Tehran on board.

“If they are willing to find a solution, they should offer a fair deal to Iran,” one said.

There are precedents for OPEC members to be exempt from agreements on output restraint. Iraq, for example, was not included for many years due to sanctions and war.

(Fox Business)

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