Experts: freezing of oil production will affect Iran and Iraq, not Russia and Saudi Arabia

Experts: freezing of oil production will affect Iran and Iraq, not Russia and Saudi Arabia


MOSCOW, February 16. /Corr. Alexey Bolshov/. Freeze the oil, if this decision is made, will not affect the economy of Russia, Saudi Arabia, Venezuela and Qatar, which was made on Tuesday a statement about the readiness to save, on average, in 2016 the volume of oil production at the level of January 2016 and not to exceed it. This opinion was expressed by the interviewed experts.

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February 16, Russia, Saudi Arabia, Qatar and Venezuela said that they are ready to save, on average, in 2016 oil production at the level of January 2016, if other countries-oil producers will join this initiative. Later, Kuwait has agreed to join the deal and to maintain oil production at 3 million barrels/day. Tomorrow will be a meeting with the same agenda with the participation of oil Ministers of Iraq, Iran and Venezuela.

According to an analyst of Gazprombank of Alexander Nazarov, in January 2016 the level of oil production of Russia and Saudi Arabia were at the highest level, so freezing of production will not affect the economy of these countries.

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“January production, both in Russia and in Saudi Arabia, was at the level of historical records. From these two countries, as well as Venezuela and Qatar, no one expected to increase the supply of oil in 2016, But frost can be crucial for those countries who planned to increase production in 2016 and this is just Iraq and Iran. Their reaction to this agreement will be decisive”, he said.

Analyst of Sberbank CIB Valery Nesterov believes that the readiness of Russia and Saudi Arabia to maintain its production levels are not much important for the market, as these countries produce oil at maximum capacity and unlikely to be able to continue to increase production.

According to the February report of OPEC production outside the cartel countries in January increased by 131 thousand barrels/day until 32,33 million barrels/day. Oil production in Russia in January, according to the CDU TEK, amounted to $ 10,878 million barrels/day.

Error per million

Interviewed experts rather skeptically assessed the possibility of the Russian Federation and OPEC to take any agreed decision on stabilization of production levels. In their view, this is unlikely.

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“Between OPEC consensus never happened. Even when decisions were made, rules on quotas, as a rule, not carried out by Venezuela, Nigeria and other countries, said Valery Nesterov. – Consideration of compliance or non-compliance of quotas and commitments extremely difficult. Error of production of oil, in my opinion, is the millions of tons of oil per year”.

The greatest interest in this situation calls Iran’s stance when ready to freeze oil production. Today, Reuters quoted informed sources reported that the country may receive special terms as part of a global agreement on freezing the level of oil production.

Iraq has already made a statement about the readiness to freeze oil production at the level of January of this year. About this channel “Al-sumaria” said an informed source in the Iraqi Ministry of oil.

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Alexander Nazarov noted that the statements of Iraq and Iran now plays a far greater role than Russia and Saudi Arabia. “If they (Iraq and Iran is approx. ed.) tomorrow will make the same statements, the price will change even more,” he said, but found it difficult to assess how the price of oil may rise.

UBS analyst Maxim Moshkov believes that Russia and OPEC will freeze production only in the case of a deep fall of oil prices to below $30 per barrel, however, he does not believe in the possibility of reaching the agreement with Iran due to the fact that the country has to restore production after the lifting of sanctions.

“At the current price of oil solution (about freezing of oil – approx. ed.) is unlikely if the oil price drops below $30 – so, – said the expert. – With Iran fail to agree. Iran about their intentions and stated its plans to increase production”.

A daunting challenge

According to experts, the effect of freezing the level of oil production will be short-term without the participation in the negotiations the USA, Norway, Mexico and Brazil.

“Without shale producers without participation in the negotiations in Norway, where production is increasing, without of Mexico, where also want to increase it, and without Brazil this objective (to achieve stabilisation of oil prices – approx. ed.) until it appears very heavy”, – said Valery Nesterov.

According to him, the decision of the Russian Federation and OPEC to keep oil production level will not lead in the medium term to higher prices. Production in the U.S. will increase and price will fall again.

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“Producers of shale oil in the United States now produce about 250 million tons per year. They have suffered in recent times, lowered production, but they have a great Foundation for the future. Even if under the pink scenario, Russia and OPEC would be able to agree, and the price jumps by $5-10 per barrel up the production in the United States will soon go up and the price of oil will collapse again,” said the analyst.

The expert believes that today’s statement is a minimum requirement, and in any case they have a positive impact on the market. But to truly solve the world oil market and stabilize oil prices more extensive dialogue with all market participants.

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