Saudi Ara­bia and Rus­sia agree to freeze oil out­put

The Pak Banker - - MARKETS/SPORTS -

Saudi Ara­bia and Rus­sia, the world's two largest crude pro­duc­ers, agreed to freeze out­put af­ter talks in Qatar.

The deal to fix pro­duc­tion at Jan­uary lev­els will be "ad­e­quate" and Saudi Ara­bia still wants to meet the de­mand of its cus­tomers, Oil Min­is­ter Ali Al-Naimi said in Doha af­ter the talks with Rus­sian En­ergy Min­ster Alexan­der No­vak. Qatar and Venezuela also agreed to par­tic­i­pate, Al-Naimi said. The freeze is con­di­tional on other na­tion's agree­ing to par­tic­i­pate, Rus­sia's En­ergy Min­istry said in a state­ment. Oil pared gains in Lon­don, af­ter ris­ing be­fore the meet­ing amid spec­u­la­tion the coun­tries would dis­cuss pro­duc­tion cuts.

"This is an an­nounce­ment of a pro­duc­tion freeze among coun­tries whose pro­duc­tion didn't even grow re­cently," said Eu­gen Weinberg, head of com­modi­ties re­search at Com­merzbank AG in Frank­furt. "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."

More than a year since the Or­ga­ni­za­tion of Pe­tro­leum Ex­port­ing Coun­tries de­cided not to cut pro­duc­tion to boost prices, oil re­mains about 70 per­cent below its 2014 peak. Sup­ply still ex­ceeds de­mand and record global oil stock­piles con­tinue to swell, po­ten­tially push­ing prices below $20 a bar­rel be­fore the rout is over, Gold­man Sachs Group Inc. said last week.

Iran, OPEC's fifth-largest pro­ducer, ruled out any curbs on its oil pro­duc­tion when the group met in De­cem­ber. It plans to boost out­put and ex­ports by 1 mil­lion bar­rels a day this year fol­low­ing the lift­ing of in­ter­na­tional sanc­tions last month. This week the na­tion loaded its first Europe-bound crude cargo in four years.

Iraq con­tin­ues to boost pro­duc­tion as it re­cov­ers from years of con­flict and un­der in­vest­ment. The na­tion's out­put reached a record 4.35 mil­lion bar­rels a day in Jan­uary and more in­creases could fol­low, ac­cord­ing to the In­ter­na­tional En­ergy Agency.

Brent crude was 2 per­cent higher at $34.06 a bar­rel at 10:01 a.m. in Lon­don, hav­ing ear­lier climbed as much as 6.5 per­cent.

"A freeze would not cre­ate an im­me­di­ate Uturn, but it creates a bet­ter foun­da­tion for the price re­cov­ery in the se­cond half," Olivier Jakob, man­ag­ing di­rec­tor of con­sul­tant Petro­ma­trix GmBh, said in a note to clients be­fore the meet­ing con­cluded.

The freeze deal comes af­ter months of com­pe­ti­tion for mar­ket share be­tween Rus­sia and Saudi Ara­bia. Riyadh has taken the rare step of sell­ing crude into Moscow's back­yard of east­ern Euro­pean, while Rus­sia over­took Saudi Ara­bia in oil ex­ports into China. The two na­tions are also back­ing op­po­site sides in the Syr­ian civil war. Ac­cord­ing the IEA, Saudi Ara­bia pro­duced 10.2 mil­lion bar­rels a day in Jan­uary, below the most re­cent peak of 10.5 mil­lion bar­rels a day set in June 2015. Rus­sia pro­duced nearly 10.9 mil­lion bar­rels a day in the same month, a postSoviet record, ac­cord­ing to of­fi­cial data. Venezuela pumped 2.4 mil­lion bar­rels a day and Qatar pro­duced 680,000, ac­cord­ing to the IEA.

Qatar will lead mon­i­tor­ing of the out­put freeze agree­ment, the na­tion's En­ergy Min­is­ter Mo­ham­mad bin Saleh al-Sada said at a press briefing. Low oil prices haven't been pos­i­tive for the world, he said.

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