Saudis and Russia agree oil output freeze, Iran still an obstacle

DOHA - Top oil exporters Russia and Saudi Arabia agreed on Tuesday to freeze output levels but said the deal was contingent on other producers joining in - a major sticking point with Iran absent from the talks and determined to raise production.

The Saudi, Russian, Qatari and Venezuelan oil ministers announced the proposal after a previously undisclosed meeting in Doha. It could become the first joint OPEC and non-OPEC deal in 15 years, aimed at tackling a growing oversupply of crude and helping prices recover from their lowest in over a decade.

Saudi Oil Minister Ali al-Naimi said freezing production at January levels - near record highs - was an adequate measure and he hoped other producers would adopt the plan. Venezuelan Oil Minister Eulogio Del Pino said more talks would take place with Iran and Iraq on Wednesday in Tehran.

"The reason we agreed to a potential freeze of production is simple: it is the beginning of a process which we will assess in the next few months and decide if we need other steps to stabilise and improve the market," Naimi told reporters.

"We don't want significant gyrations in prices, we don't want reduction in supply, we want to meet demand, we want a stable oil price. We have to take a step at a time," he said.

Oil prices LCOc1 jumped to $35.55 per barrel after the news about the secret meeting but later pared gains to trade near $33 on concerns that Iran may reject the deal and that even if Tehran agreed it would not help ease the growing global glut. [O/R]

OPEC member Iran, Saudi Arabia's regional arch rival, has pledged to steeply increase output in the coming months as it looks to regain market share lost after years of international sanctions, which were lifted in January following a deal with world powers over its nuclear programme.

"Our situation is totally different to those countries that have been producing at high levels for the past few years," a senior source familiar with Iran's thinking told Reuters.

Iranian Oil Minister Bijan Zanganeh also indicated Tehran would not agree to freezing its output at January levels, saying the country would not give up its appropriate share of the global oil market.

SPECIAL TERMS

The fact that output from OPEC kingpin Saudi Arabia and non-OPEC Russia - the world's two top producers and exporters - is near record highs complicates any agreement since Iran is producing at least 1 million barrels per day below its capacity and pre-sanctions levels.

However, two non-Iranian sources close to OPEC discussions told Reuters that Iran may be offered special terms as part of the output freeze deal. "Iran is returning to the market and needs to be given a special chance but it also needs to make some calculations," said one source.

Russian Deputy Prime Minister Arkady Dvorkovich said freezing output was not a problem for his country as he anyway expected its production to be flat this year versus 2015.

An Iraqi oil ministry source said Baghdad was also happy to freeze production if all parties agreed.

"The agreement (if successful) should support oil prices but there are reasons to be cautious. Not all OPEC members have signed up to the deal - notably Iran and Iraq. History would also suggest that compliance may be an issue," said Capital Economics' analyst Jason Tuvey.

OPEC has been quarrelling for decades over output levels and Russia, which last agreed to cooperate with OPEC back in 2001, never followed through on its pledge and raised exports instead.

Also complicating any potential agreement is the geo-political rivalry in the Middle East between Sunni Muslim power Saudi Arabia and Shi'ite Iran. Saudi Arabia and its Gulf allies are fighting proxy conflicts with Russia and Iran in the region, including in Syria and Yemen.

In Syria's five-year-old civil war, Riyadh politically and financially backs some rebel groups battling President Bashar al-Assad's government, which has gained the upper hand with the help of Russian warplanes and Iranian-backed Shi'ite militias.

RUSSIAN BUDGET

The Doha meeting came after more than 18 months of declining oil prices, knocking crude below $30 a barrel for the first time in over a decade from as high as $115 a barrel in mid-2014.

The slump was triggered by booming U.S. shale oil output and a decision by Saudi Arabia and its OPEC Gulf allies to raise production to fight for market share and drive higher-cost production out of the market.

But although U.S. output has begun to decline and global demand has been robust it has still not been enough to offset booming global production which has led to oil stockpiles rising to record levels.

Saudi Arabia has long insisted it would reduce supply only if other OPEC and non-OPEC members agreed, but Russia - the world's biggest oil producer and No.2 exporter - has said it would not join in as its Siberian fields were different from those of OPEC.

The mood began to change in January as oil prices fell below $30 per barrel.

While Venezuela has been the hardest-hit producer, current oil prices are a fraction of what Russia needs to balance its budget as it heads towards parliamentary elections this year. Saudi finances are also suffering badly, running a $98 billion budget deficit last year, which it seeks to trim this year.

But while talking about potential cooperation with OPEC, Russia raised its output to a new record high in January. For a table on OPEC and Russian output, click here

"Even if they do freeze production at January levels, you have still got global inventory builds which are going to weigh on prices. So whilst it's a positive step, I don't think it will have a huge impact on supply/demand balances, simply because we were oversupplied in January anyway," said Energy Aspects' analyst Dominic Haywood.

source: www.abs-cbnnews.com

OPEC has no choice but to keep output unchanged- Kuwait

KUWAIT - OPEC has no choice but to keep its market share and shun oil output cuts, Kuwait's oil minister said on Thursday, reiterating the view from the emirate that the group will hold its course when it meets next in June.

"Of course we are concerned because the price of oil will affect our budget ... within OPEC we don't have any other choice than keeping the ceiling of production as it is because we don't want to lose our share in the market," Ali al-Omair told reporters in Kuwait city.

Many OPEC oil ministers, including Saudi Arabia's Ali al-Naimi, have defended the group's November decision not to cut production but instead defend market share and curtail the output of more expensive producers such as the United States.

The accord pushed oil prices below $50 per barrel, extending a sharp decline that began in June amid a global glut of crude and weakening demand.

Since the oil price collapse, OPEC officials have said they wanted non-OPEC producers to cooperate with the group but those attempts have made little progress.

"If there is any type of arrangement with (countries) outside OPEC, we will be very happy," Omair said on Thursday, without elaborating.

Oil prices have recovered slightly since to over $60 a barrel, but have fell again over the past days. Brent crude for May delivery fell towards $55 a barrel on Thursday following a bigger than expected crude stock build in the United States that fueled concerns of an oversupply in the world's largest oil consumer.

Omair said he expected higher prices by the end of the year.

"There are indications that at end of 2015 the economic growth rates will improve and this would make the prices improve," he said.

OPEC has said it believes oversupply, as much as 1.5 million barrels per day, will evaporate as oil demand picks up and U.S. oil production growth slows.

However, should U.S. oil producers prove more resilient than OPEC expects, the glut could persist and grow if Western powers and Iran reach a nuclear deal allowing Tehran to increase its oil exports.

source: www.abs-cbnnews.com

US allows oil exports for 1st time since 1970s: WSJ

WASHINGTON - The US will allow two companies to export unrefined oil for the first time in four decades, taking steps to break a ban on crude exports, The Wall Street Journal reported Tuesday.

The Commerce Department will permit the two Texas-based companies to export the ultra-light condensate, which has grown in supply on the back of the boom in fracking-based exploration and production of natural gas.

"With relatively minimal processing, oil shipments could begin as early as August, according to one industry executive involved in the matter," the Journal said.

Pressure has been building for a year for the government to end the 1970s ban on exports, an energy security measure long seen crucial in a country heavily dependent on oil imports to meet domestic needs.

But the surge in production from shale-based deposits in areas like North Dakota and Texas, made possible by advances in hydraulic fracturing technology, has sharply reduced the need for imports and created regional surpluses due to distribution bottlenecks.

That has given rise to industry pressure to allow exports from areas like the Gulf of Mexico, even as the country imports crude through east coast ports.

Some resistance has come from refiners and consumer advocates who fear that competing with export markets for the crude could drive up their prices, and eventually raise the cost of fuel to consumers.

Still, despite pressure in Congress and from the industry, the ban on crude exports has not been lifted. The Commerce Department instead made a special ruling to allow the export of condensate on the grounds that it has been processed enough to qualify it for export, even if it has not been refined.

The US already exports large volumes of refined oil products.

The Journal said the two companies receiving permits to export condensate are Pioneer Natural Resources of Irving, Texas, and Enterprise Products Partners of Houston.

source: www.abs-cbnnews.com