After global oil freeze deal, prospects for cuts unclear and remote

*Offshore oil rig.

*Offshore oil rig.

15 April 2016, Dubai/London — An oil output cut by global producers, following on from the output freeze initiative, is quite unlikely and would be months away, OPEC sources said, suggesting any additional action to boost prices is remote.

The freeze plan – to be discussed by OPEC and non-members such as Russia on Sunday in Doha – has helped oil prices to rise over 60 percent from a 12-year low near $27 a barrel in January, despite doubts whether it is enough to tackle a supply glut.

While a cut would go further, OPEC delegates say doubts over compliance with the output freeze and the uncertainties over Libyan and Iranian supply means that any discussion of a cut would be unlikely before late 2016 or next year.

“It is difficult to talk about a cut,” said a delegate from a major OPEC producer, adding any such discussions would be months away if they occurred at all.

“Maybe when the Iranians arrive at their previous production level of 3.6 million barrels a day or 3.7 million bpd, and then OPEC will talk about a cut. Not before that.”

A second delegate from another major producer in the Organization of the Petroleum Exporting Countries gave a similar timeframe, dismissing the prospect that OPEC could trim supply at its next scheduled meeting in June.

“There will be no cut in June. Maybe later in the year or next year. It depends on the market rebalancing.”

Libya, pumping a fraction of its potential due to fighting in the country, has said it does not plan to attend Sunday’s meeting.

Iran, pumping about 3.30 million bpd, has refused to join the output freeze as it wants to recover market share following the lifting of Western sanctions in January.

Russian oil minister Alexander Novak told a closed-door briefing this week that the oil output freeze will be loosely-framed with few detailed commitments, two people present at the briefing told Reuters.

Barely Agree
Oil officials are not seriously talking about any steps beyond the output freeze, according to another OPEC source.

“Talk of a cut is far behind the scenes now. ‎They can barely agree on the freeze,” he said.

Nonetheless, the common wish of all sides to avoid a renewed drop in prices puts pressure on all sides to get the freeze deal agreed, OPEC sources said.

Countries are discussing a number of reference points at which to freeze output – January levels, February levels or an average – and have floated the idea of setting up a committee to monitor compliance.

“The Saudis don’t want the deal to fail because of the political pressure on them to act,” an OPEC watcher who asked not to be named said. “And in general, no one wants to see prices sinking to $30 and below again.”

A production freeze, at least in theory, will set down a baseline which could form a starting point for any future supply agreements – potentially making such agreements easier.

But delegates say it is still early days. OPEC ditched individual output quotas in late 2011 when it set an overall output target for all members. The overall target was also scrapped by OPEC last December.

“If OPEC and non-OPEC agree on something and implement it, surely it could help oil market stability,” said a third OPEC delegate. “However, this is a big if.”
*Alex Lawler & Rania El Gamal, Editing – Peter Graff – Reuters

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