Russia, Saudi Arabia agree to freeze oil output to stabilize the market

Saudi Arabia has said it would cut output only if non-OPEC producers agreed to join it.

USA crude could fall to below $20 as a drop in demand outweighs cuts to output as domestic producers shut wells, BMI Research said in a note.

The ministry quoted Energy Minister Alexander Novak announcing the decision Tuesday following an unexpected, closed-door meeting involving the four countries in the Qatari capital, Doha.

The Middle Eastern country will seek to regain market share to pre-sanctions level, regardless of prices, said a person with direct knowledge of country’s plans, who asked not to be identified because the information is private.

The Qatari minister said that “intensive communications” will start immediately with other OPEC and non-OPEC producers, including Iraq and Iran, to win their approval and support.

“The reason we agreed to a potential freeze of production is simple: it is the beginning of a process which we will assess in the next few months and decide if we need other steps to stabilize and improve the market”, Naimi told reporters.

Iran, OPEC’s fifth-largest producer, ruled out any curbs on its oil production when the group met in December.

In early trading Tuesday, global benchmark Brent crude rose 7 cents to $33.43 a barrel on the ICE Futures Europe, a muted response by the oil traders so far, because the Saudi-Russia agreement essentially leaves the global crude-production oversupply of 1 million barrels a day in place.

“This is very important, we don’t want significant gyrations in prices, we want to meet demand”.

Mohammad bin Saleh al-Sada said at a news conference this step would stabilise the oil market. The freeze immediately caused a blip in oil prices, according to Reuters, but the agreement might not make much difference in overall output. Riyadh has taken the rare step of selling crude into Moscow’s backyard of eastern European, while Russian Federation overtook Saudi Arabia in oil exports into China.

The prices came under renewed pressure by the return of Iran to world markets after the lifting of global sanctions linked to its nuclear programme.

The 13-nation OPEC oil cartel, of which Saudi Arabia, Venezuela, Qatar and Iran are members, has refrained from cutting output as it looks to maintain market share in the face of competition from U.S. shale oil producers.