Baku, Azerbaijan, Feb. 17
By Aygun Badalova - Trend:
Analysts of British economic research and consulting company Capital Economics are wary of the agreement reached between Russia and some OPEC member on the oil production freeze.
"It was unlikely that either country would have increased production further anyway," they said in a report, obtained by Trend.
For the deal to have any teeth, Saudi Arabia in particular needs to be willing to cut output, not least to offset the increased supply still to come from Iran, analysts believe.
The meeting took place earlier this week between energy ministers of Saudi Arabia, Russia, Venezuela and Qatar concluded with an agreement that these four countries will freeze their output at its January levels provided other major producers follow suit.
Later, Iranian Oil Minister Bijan Namdar Zangeneh following the meeting with his counterparts from Venezuela, Iraq and Qatar welcomed the initiative to set a "ceiling" as a first step toward stabilizing the market. However, he did not explicitly say that Iran would keep its own output at January's levels.
The position and further actions of Iran are extremely important, as the country, free of sanctions, repeatedly declared about the plans to increase oil production and export.
Estimates vary widely, but Russia currently produces around 11 million barrels per day (bpd) and Saudi Arabia more than 10 million, together contributing roughly 22 percent of global supply, Capital Economics analysts' report said.
Venezuela and Qatar between them provide another 3 million bpd, meaning that the four countries already signed up to the deal account for around a quarter of world production, analysts said.
Analysts stressed that the reached agreement is dependent on others joining in.
"In reality, even the participation of other OPEC members is in doubt. In particular, Iran is planning to increase output by at least 500,000 bpd this year following the lifting of Western
sanctions. Iran has already indicated that it is unwilling to freeze its output until it reaches presanctions levels, which implies an increase of at least one million bpd still to come," they said.
At the same time, analysts believe that even if total OPEC output can be capped at its January level (implying any increase from Iran, or other members such as Iraq, is offset by cuts elsewhere) this would still be exceptionally high.
The same point applies to current production in Russia, according to the analysts.
"In other words, this deal would simply maintain the excess supply that is now in place. This might be better than a further increase, but it is not the output cuts that some in the markets have been hoping for," analysts said.
"The upshot is that the deal leaves plenty of room for disappointment," they added.