Oil prices drop amid disappointing output freeze deal

The announcement was made at a joint press conference here yesterday by Minister of Energy and Industry and Opec President H E Dr Mohammed bin Saleh Al Sada, Saudi Minister of Petroleum and Mineral Resources Ali bin Ibrahim Al Nuaimi, Russian Energy Minister Alexander Novak and Venezuelan Oil Minister Eulogio Del Pino. Despite rising early Tuesday with news of a Russia-Saudi Arabia agreement to freeze crude output levels, oil prices later fell as Iran hinted it is unlikely Tehran would join the consensus, APA reports quoting Anadolu agency.

Opec members are planning to persuade Iran to freeze its oil production levels and are travelling to Iran on 17 February to discuss the issue with Iran’s Oil Minister Bijan Zanganeh. In late London trading benchmark Brent crude oil was down 64 cents to $32.75 a barrel, while the main United States contract, WTI, was down 0.43 cents to $29.01.

“We are not planning to freeze oil production”, the Caspian nation’s energy ministry said in a brief statement.

OPEC has traditionally produced 30.5 million barrels a day, with Saudi Arabia’s output accounting for a third of that figure.

Saudi Oil Minister Ali al-Naimi said freezing production is enough for now: “We don’t want significant gyrations in prices”. Analysts said that while the decision is a step in the right direction to bring supply and demand into balance, global inventories remain near record levels and are likely to dampen any price rallies.

“I don’t think an agreement is going to last because people aren’t going to believe the ink on the page”, Schulz, professor in Strategy and Global Management and Business and Environment, said.

Iran will nearly certainly reject the deal because “to agree to cap exports now as part of a wider Opec deal would basically mean Iran had accepted restraints on its nuclear programme in exchange for nothing”, Mr Evans said.

The potential for a production freeze, however, comes as Iran, an OPEC member and longtime rival of Saudi Arabia, vows to take a larger market share as sanctions pressures ease.

Nevertheless, even a hold at current levels could help an oil market that has been victimized by steadily increasing production.

The slump has been longer and deeper than anyone predicted, and the mood may be shifting among producers that have been determined to defend market share rather than prices.

Javadi said Iran had already reached an agreement to export oil to France, Russia and Spain.