Russia, Saudi to pitch oil output freeze: Update 2
Qatari energy minister Mohammed Saleh al-Sada, who is current Opec president, confirmed this and said he will lead talks with Opec and non-Opec producers.
Front-month Ice Brent fell back immediately after Novak's comments. Russia and Opec between them produced an estimated 1.5mn b/d more in January than a year earlier, according to Argus estimates. Global oil output is running at 2.7mn b/d more than global demand, adding to burgeoning global oil stockpiles.
Novak, Saudi oil minister Ali Naimi, al-Sada, and Venezuelan energy minister and state-owned oil company PdV chief executive Eulogio Del Pino held a meeting today in Doha, Qatar.
Al-Sada said afterwards that talks would begin with Opec and non-Opec producers and that the freeze would be implemented if Iran, Iraq and other producing countries agreed to the move.
No comment has yet been made by the state-controlled Saudi Press Agency or Venezuela's state-controlled news agency.
If a freeze at January production levels could be agreed, it would, according to IEA reckoning, do little to address the crude supply overhang and would fall far short of the hopes of those Opec members that wanted a reversal of the Saudi-led strategy of prioritising market share over prices.
"On the assumption — perhaps optimistic — that Opec crude production is flat at 32.7mn b/d in the first quarter of 2016, there is an implied stock build of 2mn b/d followed by a 1.5mn b/d build in the second quarter," the IEA said last week. Its monthly Oil Market Report added that "supply and demand data for the second half of the year suggests more stock building, this time by 300,000 b/d."
Opec members' crude production rose by nearly 600,000 b/d in January, compared with December, to approach 32.9mn b/d, excluding Indonesia, according to data they submitted to the Opec secretariat. Saudi Arabia said it produced 10.23mn b/d in January, a rise on the month of 86,000 b/d. Russia pumped 10.83mn b/d in January, a post-Soviet record and up by 160,000 b/d from a year earlier.
Argus estimated Opec crude production in January at 32.53mn b/d, up by 1.34mn b/d from a year earlier. Opec has in the past used production levels estimated by secondary sources to set agreed output levels. Secondary sources' estimates put Opec crude production at 32.335mn b/d in January, according to Opec's latest Monthly Oil Market Report.
In addition to a freeze of production at January levels not cutting into oversupply, the putative agreement in Doha faces significant problems.
In the first place, Russian production may fall in 2016 anyway, compared with 2015, while the issue that exercises Saudi Arabia and other Opec members is Russian exports.
And a freeze depends on winning agreement from Iran to halt its return to the market after the lifting of nuclear-related US and EU oil sanctions last month. Tehran is critical of Riyadh's strategy of defending Opec market share, but is fighting its own market share war within Opec and has been consistent in stating it will not countenance halting its increase in exports until it has regained its pre-sanctions share of Opec production and the global market. Just yesterday, a senior foreign ministry official reiterated this.
In the past, officials have indicated Iran would consider cutting production only once it had regained the share it claims. And there are doubts in Qatar that Iran can be shifted from this position.
Del Pino said he will continue the shuttle diplomacy that resulted in today's meeting, meeting with the Iranian and Iraqi oil ministers.
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