Baku, Azerbaijan, Feb. 17
By Aygun Badalova - Trend:
The agreement reached between Russia and some OPEC members on oil output freeze will add volatility in prices in the short term as traders use the news flow to push prices higher, Sam Barden, the director of Wimpole International, an energy market development company, believes.
Energy ministers of Russia, Saudi Arabia, Venezuela and Qatar agreed on Feb. 16 to freeze the production of oil after the negotiations in Doha. Oil output will be stabilized at the level of Jan. 11, if other major exporters follow the suit.
"It is positive that these nations are talking in the first place, however I think that the fundamentals which are driving oil price volatility unfortunately have little correlation to production output," Barden told Trend.
"Firstly, you cannot just "turn the tap down" on the oil well head and expect to solve the problem of a collapsing oil price. Oil price discovery is in today's market complex, so opaque, convoluted and broken, not to mention financialized, that we should be looking for new exchange driven price discovery models beyond London (Brent) and New York (NYMEX)," he added.
Barden stressed that the reality is that oil market currently remains oversupplied, above ground storage full, and Iran re-entering the global oil market with a view to increasing international sales.
"We have not seen the low in oil prices yet," he said.
Oil prices rose by more than five percent climbing above $34 a barrel on Wednesday, Feb.17 after Iran voiced its support for an initiative led by Russia and Saudi Arabia to freeze production to boost prices, Reuters reported.
Iranian Oil Minister Bijan Namdar Zangeneh met counterparts from Venezuela, Iraq and Qatar, after which he welcomed the initiative to set a "ceiling" as a first step toward stabilizing the market.
Zangeneh, quoted by the Shana news agency, did not explicitly say that Iran would keep its own output at January's levels.
Earlier, Iran's OPEC envoy Mehdi Asali told local newspaper Shargh that the country would continue increasing crude output until it reached levels achieved before the imposition of international sanctions.
Barden believes that an agreement on Iran's participation in oil output freeze deal could be reached, however, the likelihood of all the members to the deal actually enforcing the agreement is low.
Free of sanctions, Iran declared about its plans to increase its oil export by 500,000 barrels per day, and then raise the figure by another 500,000 to two million barrels per day within a six month period at the next step.
The country produced 2.925 million barrels per day in January compared to 2.887 million barrels per day in December, 2015, according to OPEC latest report.