12 February 2016, Dubai/London — Some OPEC countries are trying to achieve a consensus among the group and key non-members for an oil production “freeze”, sources familiar with the discussions say, in an attempt to tackle the global glut without cutting supply.
Top exporter Saudi Arabia might be warming to the idea, though it was too early to say whether the kingdom would give its blessing because any deal depends mainly on a commitment by Iran to restrict its plan to boost exports, the sources said.
The proposal of a production “freeze” at current levels was floated by Venezuelan Oil Minister Eulogio Del Pino during his tour of producing countries this month which included Russia, Iran, Qatar and Saudi Arabia, they said.
“The Venezuelan oil minister wants to organize a meeting before OPEC’s June meeting if there is consensus on either a production cut or at least a production ‘freeze’,” one source familiar with the matter said.
“There is an ongoing discussion to meet soon for a freeze deal. That’s what’s happening now,” the source said, adding that at least Russia and Qatar had given their initial agreement if there were a consensus among other producers.
Oil prices began a slide from above $100 a barrel in mid-2014, but the Organization of the Petroleum Exporting Countries has declined to trim output without help from non-members, which so far have refused to participate.
A production freeze could amount to a compromise in that it would limit further increases in the supply glut that sent prices to a 12-year low of $27.10 a barrel last month, while not requiring countries to cut supply and give up market share.
Venezuela’s proposal was also discussed in Riyadh during a meeting with Saudi oil minister Ali al-Naimi and Del Pino on Sunday, a second source said.
While the idea was met with openness by Saudi Arabia, talks are still at an early stage and Riyadh will not commit unless Tehran agrees to restrict supplies, the source said.
That appears to be a major stumbling block in the path of any agreement. A source familiar with Iranian thinking, asked whether a production freeze would gain much support in OPEC, replied that it would not.
Iran is reluctant to restrain supply as it wants to recover the market share it lost during sanctions that were imposed in 2012 because of its nuclear program. The sanctions were lifted in January.
With prices sinking further, senior officials from OPEC and Russia have stepped up vague talk of possible joint action to fix the supply glut.
Output of shale oil has slowed since OPEC’s historic policy shift of November 2014 not to cut supply in the hope that low prices would curb competing production. But OPEC’s own output has surged, led by Saudi Arabia and Iraq. <OPEC/O>
Supply from OPEC is likely to climb further as Iran has moved to restore relations with buyers, ordered a 500,000-barrels-per-day (bpd) rise in output and struck deals with European and Asian customers.
An OPEC source said freezing production might be a temporary compromise accepted by most producers that are already pumping at near capacity, which would support prices, but Iran remained the key to any deal.
“Everybody is already producing to their maximum capacity now, except for Iran,” the source said.
“If the Iranians are willing to stick to, let’s say, the rise of 300,000 bpd they said they have already committed to Europe and if U.S. shale production has slowed, then yes, a production freeze would be a positive sign to the market.”
“It would help prices to recover,” the source added. “But this is a temporary solution and needs the will to make it work.”
On Wednesday last week, Iranian news agency Shana quoted Del Pino as saying six producing countries, including Iran and Iraq and non-members Russia and Oman, supported a meeting to agree steps to bolster prices.
Riyadh has said it was willing to cooperate on action to stabilize the market as long as all OPEC members and key non-OPEC producers joined in. Rising production by Iraq and Iran’s statements about boosting output were, sources say, the main obstacles within OPEC to a deal.
Another OPEC source said an accord would be hard to reach. “I doubt that there is an easy agreement because it would be so sensitive for some countries,” adding that OPEC and non-OPEC would need to agree.
An OPEC delegate shared that view and said there was still no concrete plan for a producer meeting.
“This would need to be an agreement between all producers, not just OPEC,” the delegate said of a production freeze. “If we met without an agenda, we would not solve this problem of the price.”
*Rania El Gamal, Alex Lawler & Dmitry Zhdavnnikov; Editing – Dale Hudson – Reuters