Sunday, April 17, 2016

Oil producers fail to agree deal to freeze output after Saudi Arabia-Iran standoff

Opec and non-Opec members say they need more time after Riyadh demands arch-rival Tehran join agreement

The world’s major oil producing nations failed to strike an agreement on Sunday night to freeze production, saying they needed more time to agree a deal to try to buoy the price of oil.

What producers had hoped would be the first deal in 15 years ran into difficulty after Saudi Arabia – the largest exporter of oil – demanded that Iran join an agreement to freeze output.


Iran has been reluctant to agree to hold back on oil production while it attempts to return its market share to pre-sanction levels.

The meeting in Doha had been called on Sunday for 18 countries to sign off on a deal that would helped to put a floor on the price of crude oil which, at $45 a barrel, has risen 60% from its lows in January.

But Reuters quoted sources saying that Saudi Arabia wanted all Opec members to attend talks, despite insisting earlier on excluding Iran, its political rival in the region, because Tehran had refused to freeze production. 

If a deal cannot be struck soon, it is possible that recent rises in the price of oil will stall.

Economists at French bank Société Générale said: “When it comes to oil, the principle of Goldilocks applies in full. Too low a price raises fear of a vicious circle of default, spillover to bank balance sheets, eroding financial conditions and a new headwind for the real economy.

“Too high a price, on the other hand, erodes the welcome boost to purchasing power. But, if higher oil prices are driven by stronger demand, then this is good news.”

They noted that a recent report by the International Energy Agency warned that a mere production freeze would have a limited effect on physical oil supply.

Even so, expectations had been high before the Sunday meeting that a deal could be struck between Opec and non-Opec oil producers to hold output at January’s levels until October. Reuters was reporting that producers were instead agreeing to freeze oil production at “an agreeable level” as long as all Opec countries and major exporting nations participated.

“If there is no deal today, it will be more than just Iran that Saudi Arabia will be targeting. If there is no freeze, that would directly affect North American production going forward, perhaps something Saudis might like to see,” Natixis oil analyst Abhishek Deshpande told Reuters.


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