OPEC, Rus­sia oil out­put freeze deal may be 'mean­ing­less': IEA

The Pak Banker - - MARKETS/SPORTS -

A deal among some OPEC pro­duc­ers and Rus­sia to freeze pro­duc­tion is per­haps "mean­ing­less" as Saudi Ara­bia is the only coun­try with the abil­ity to in­crease out­put, a se­nior ex­ec­u­tive from the In­ter­na­tional En­ergy Agency (IEA) said on Wed­nes­day.

Brent crude fu­tures are up more than 50 per­cent from a 12-year low near $27 a bar­rel hit early this year, bounc­ing back af­ter Rus­sia and OPEC's Saudi Ara­bia, Venezuela and Qatar struck an agree­ment last month to keep out­put at Jan­uary lev­els.

Qatar has in­vited all 13 mem­bers of the Or­ga­ni­za­tion of the Pe­tro­leum Ex­port­ing Coun­tries (OPEC) and ma­jor non-OPEC pro­duc­ers to Doha on April 17 for an­other round of talks to widen the pro­duc­tion freeze deal.

"Amongst the group of coun­tries (par­tic­i­pat­ing in the meet­ing) that we're aware of, only Saudi Ara­bia has any abil­ity to in­crease its pro­duc­tion," said Neil Atkin­son, head of the IEA's oil in­dus­try and mar­kets divi­sion, at an in­dus­try event.

"So a freeze on pro­duc­tion is per­haps rather mean­ing­less. It's more some kind of ges­ture which per­haps is aimed ... to build con­fi­dence that there will be sta­bil­ity in oil prices." Libya has joined Iran in snub­bing the ini­tia­tive, and the ab­sence of the two OPEC pro­duc­ers - both with am­ple room to in­crease out­put - would limit the im­pact of any suc­cess in broad­en­ing the freeze at the April meet­ing.

The rise in out­put from Iran in the first quar­ter post-sanc­tions has been in line with IEA's ex­pec­ta­tion of 300,000 bar­rels per day (bpd), Atkin­son said, adding that Tehran's out­put could rise again by the same amount by the third quar­ter. "Iran has not ex­actly been flood­ing the mar­ket with lots more oil. It seems to be far more mea­sured," Atkin­son said.

It will take a while for Iran to re­gain its pre-sanc­tions share in Europe, where mar­kets have been taken over by Saudi Ara­bia, Rus­sia and Iraq, he added.

The IEA, en­ergy watch­dog for the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and De­vel­op­ment (OECD), ex­pects the wide gap be­tween sup­ply and de­mand to nar­row later this year, paving the way for an oil price re­cov­ery in 2017.

"We think the worst is over for prices ... To­day's prices may not be sus­tain­able at ex­actly $40 a bar­rel, but in this mid$30s and up­ward range, we think there will be some sup­port un­less there's a ma­jor change in fun­da­men­tals," Atkin­son said.

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