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Wednesday, February 17, 2016

Iran says it is 'illogical' for it to join oil output freeze

Iran's Opec envoy is reported as saying it is "illogical" for it to join the oil output freeze agreed by a Russian and Saudi Arabian-led group on Tuesday.

An Iranian women at the petrol pump
Mehdi Asali, quoted in the Iranian newspaper, Shargh, said Iran will continue to increase oil production until it reaches pre-sanction levels.

Venezuela's oil minister is holding talks in Tehran to broker a deal with Iran and Iraq on Wednesday.
Iran has only just restarted oil exports after sanctions were lifted.
The move by four countries, including Venezuela and Qatar, is the first of its kind in 15 years.
It is designed to reflate oil prices, which have sunk by about 70% from their recent peak of $116 in June 2014 thanks to oversupply as the global economy slows down.
The plan though failed to convince oil traders.
The "freeze" in output at January levels simply allows oil producers to continue pumping at record levels.

In Tuesday trading the price of a barrel of Brent crude fell by 3.2% and a further 1.3% in early Wednesday trading. before recovering to stand up 1% at $31.52 a barrel.
FGE, international energy analysts, said: "Moves to freeze output at January levels will make little difference to the overall supply-demand balance this year and will not be enough to clear the 600,000 barrels per day surplus projected for the year."

'Special terms'

Iraq's oil ministry is in favour of capping production.
It said it was ready to commit to a production freeze if a deal was reached among other producers.
But Iran's Mr Asali said to Shargh: "Asking Iran to freeze its oil production level is illogical... when Iran was under sanctions, some countries raised their output and they caused the drop in oil prices.
"How can they expect Iran to co-operate now and pay the price?"

Paul Stevens from the Royal Institute of International Affairs at Chatham House and an expert on the oil markets said: "Before sanctions in 2012 Iran was producing around 4.4 million barrels a day.
"Just before sanctions were lifted in mid-January 2016 it was producing 2.8 million barrels per day.
"Officials have previously said they wish to increase it to 4 million barrels a day within the next three months. I think that is a wildly optimistic figure, but any increase still presents problems in terms of oversupply."
Two non-Iranian sources close to the Opec discussions told Reuters that Iran could be offered special terms as part of the output freeze deal.

'Not credible'

There are doubts over the worth of the move.
Mr Stevens agreed an exception might be made for Iran, but he believed Monday's agreement had "no credibility whatsoever" and was a strategic move by Saudi Arabia.
He pointed out that Russia - not a member of the Opec cartel - had reneged on previous production agreements. 

Sebastien Marlier, commodities analyst at the Economist Intelligence Unit said these talks marked the beginning of a "fraught, protracted negotiation process within Opec. Yet joint output cuts by both Opec members and Russia remain a distant prospect".
He, too, believed Saudi Arabia was playing a clever game: "It shows that they are willing to collaborate and are not stubbornly sticking to their painful strategy of flooding the market to evict higher-cost producers. 

"It shifts the burden of responsibility for refusing to cut production to arch-rival Iran.
"Finally, it maintains the status quo while talks are ongoing, thereby continuing to press US shale and other struggling oil producers outside of OPEC.
Tensions also remain between Saudi Arabia and Russia over Syria.
Russia is supporting President Assad's regime, with help from Iran, while Saudi Arabia as the is backing opposition forces.

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