Top global producers Saudi Arabia and Russia agreed Tuesday to freeze oil output in a bid to shore up prices after a 70 percent drop due to chronic oversupply.
Saudi Oil Minister Ali al-Naimi said the move – conditional on other major producers joining in – was designed to stabilise the market following the dramatic price fall since mid-2014.
Further talks involving Iran and Iraq are to be held in Tehran on Wednesday.
“We don’t want significant gyrations in prices. We don’t want a reduction in supply. We want to meet demand and we want a stable oil price,” Naimi said.
The announcement followed a closed-door meeting in Doha between Saudi Arabia – the de facto leader of OPEC – Venezuela, Qatar and Russia, which does not belong to the oil cartel.
“Following the meeting, all four countries are ready to freeze oil production at January levels, if other major producers do the same,” said Russia’s energy minister, Alexander Novak.
Kuwait, OPEC’s fourth largest producer, would freeze production at January levels, “conditional to the commitment of major producers from OPEC and non-OPEC members”, its acting oil minister Anas al-Saleh said.
However, energy-rich Azerbaijan refused to join the freeze.
The announcement of the freeze marked the first move between OPEC and non-cartel producers to stem the price fall since the slide began nearly 19 months ago.
Saudi Arabia and other OPEC producers have been refusing to reduce output in an attempt to drive less competitive players, in particular US shale oil producers, out of the market.
Riyadh has said it would consider output cuts only if other producers agree to follow suit, and pressure has been building as drops in oil revenues hit government coffers.
Russia in particular has seen its recession-hit economy damaged by the slump, though even Saudi Arabia has announced a record budget deficit.
Naimi said Tuesday’s decision was “the beginning of a process which we will assess in the next few months and decide whether we need other steps to stabilise… the market”.
‘ROOM FOR DISCUSSION’
Qatar’s Energy Minister Mohammed bin Saleh al-Sada said “intensive communications” would start immediately with other OPEC members, including Iraq and Iran, and non-OPEC producers to win their support.
Iran said it would host talks with Iraq and Venezuela in Tehran on Wednesday, and left the door open to joining efforts to stabilise the market.
“There’s room for discussion and examination of this issue,” Oil Minister Bijan Zanganeh said.
But he insisted Iran intends to maintain its share of the market.
“What is important first of all is that right now the oil market faces an output surplus and, secondly, Iran won’t relinquish its share,” Zanganeh said.
Prices have come under renewed pressure by the return of Iran to world markets after the lifting of international sanctions linked to its nuclear programme.
The effort to bring other producers on board may prove complicated and the market response was muted.
Oil gave up early gains Tuesday to trade lower as talk of a production freeze was seen as too weak to turn the market around.
In late London trading, benchmark Brent crude oil was down 64 cents to $32.75 a barrel, while the main US contract, WTI, was down 0.43 cents to $29.01.
“The news has actually disappointed the market slightly because some people had hoped to see a cut rather than a production freeze,” said City Index analyst Fawad Razaqzada.
In a research note, Danske Bank said the move would have little impact on reducing oversupply as “recent estimates suggest that both Russia and Saudi Arabia produced at levels close to a record high in January”.
“The two leading oil producers have basically committed not to take any imminent action to reduce the current global overproduction,” it said.
And Natixis analyst Abhishek Deshpande told AFP there was a “low probability” that Iran and Iraq would quickly agree to a freeze.
“That essentially is a production cut for them” as both were planning to boost output this year, he said.