Azerbaijan pessimistic about possibility of output freeze deal

Oil&Gas Materials 27 May 2016 14:56 (UTC +04:00)
Azerbaijan’s Energy Minister Natig Aliyev doesn’t believe that the oil producing countries will be able to reach any certain agreement on output freeze.
Azerbaijan pessimistic about possibility of output freeze deal

Baku, Azerbaijan, May 27

By Maksim Tsurkov - Trend:

Azerbaijan's Energy Minister Natig Aliyev doesn't believe that the oil producing countries will be able to reach any certain agreement on output freeze.

"I do not believe that countries will be able to reach any certain agreement," the minister said in an interview with the Caspian Energy international journal. "Saudi Arabia stated that freezing or reduction of production is not negotiable until Iran and other producers give their consent."

In the conditions of lower oil prices, OPEC was expected to take certain measures to reduce oil production rate which could have adjusted market prices to certain extent, said Natig Aliyev.

"Unfortunately, it did not happen. On the contrary, in the course of sessions and meetings, OPEC members noted that they have no intention to reduce oil production and export, and will not force the market," he said.

The main reason for OPEC countries' choosing this stance was a certain market segment gained by each country, especially Saudi Arabia, and none of them wished to yield it to any extent, according to the minister.

"The situation became more complicated at OPEC's last session in Qatar because of cancellation of sanctions earlier imposed on Iran which added that its share in the OPEC reference basket of crudes used to total 4 million barrels per day in due time and no oil production limiting would be negotiable until Iran resumes the pre-sanction level," said Natig Aliyev.

He pointed out that Libya, which used to hold one of the leading positions among oil exporting countries until certain events, is in the same situation.

"On the other hand, oil production decline is recently observed in the US and I believe that this trend is going to continue," the minister added.

"Therefore, considering the current global oil production rate, in reality, there are three countries which can still afford oil production increase. They are Saudi Arabia, Iran and Libya," said Natig Aliyev.

In this regard, everything depended on the wish and stance of these three countries at the OPEC's Qatar meeting, according to the minister.

He noted that the high oil prices ($100 or over per barrel) observed for a long time till mid of 2014 were not speculative.

These were reasonable prices which reflected the market situation and were reached owing to an economic growth of countries, energy resource consumption and demand ratio, development of alternative and renewable energy and increase of energy efficiency, according to the minister.

"Nowadays, it is evident to anyone that low prices observed for a long time have had a strong impact on the economies of not only energy resource producing but also consuming countries," said Natig Aliyev.

It is abnormal when the oil price falls by 3-4 times and stays low for a long time, according to the minister.

"Oil importing countries do not benefit from cheap oil prices either," he said. "We cannot observe rapid economic growth in Europe or South East Asia."

"Once I was told in India and China, which are big consumers of energy resources and crude oil importers, that the growth of oil price by one dollar causes additional budget deductions worth $400 billion for energy resources," said the minister. "But no rapid economic growth has taken place in India or China."

Natig Aliyev pointed out that on the eve of the session in Doha, the countries reached an agreement and were ready to sign it.

However, early in the morning of the next day, the meeting participants were asked to wait for a while because negotiations between Iran, Saudi Arabia and Qatar had not been completed yet, he said.

"When the session finally started after a long delay, we were informed that the agreed project had been changed," the minister added.

Natig Aliyev pointed out that a new draft agreement strongly differed from the previous one and stated that countries are ready to freeze oil production at the January rate if all the OPEC countries accept it.

"It was written word for word that the decision about freezing will enter into force as long as all OPEC countries join this agreement," he added.

The matter involved Iran and Libya which did not attend this meeting, he said, adding that it has become clear that this clause would not work.

"Discussion took long. It was offered to freeze production at the January rate," said the minister. "Then, suggestions were made to freeze production at the rate of four months of 2016, to create a working group for negotiations aimed at having Iran and Libya joined this agreement."

"After long unsuccessful discussions, we understood that we are not ready to adopt any declaration or agreement as there is a need for decision of all OPEC member countries without an exception," he said. "Once this is done, other non OPEC countries can joint it as well."

"Though, the meeting in Qatar turned out unsuccessful and I would even say very strange, it managed to find the exporting countries' positions over oil prices on the global market," said Natig Aliyev.

The minister pointed out that the only factor that could hold back the price increase was an entry of Iranian oil into the market.

"Lifting sanctions imposed on Iran was unambiguously perceived as a real opportunity to increase oil production," he said. "However, big investments and years will be necessary to bring production rate in Iran up to the pre-sanction level."

But nevertheless, the factor of lifting of sanctions from Iran has played its role, he added.

"I think that recovery of Libyan fields will make it complicated, as their technical condition is not good now," said the minister. "But nevertheless, the tendency will be directed towards oil production increase in Libya."

Despite the fact that many people thought that prices would collapse after the Doha meeting, in reality a slight and noticeable growth of world prices up to $46-$48 per barrel is observed now, said the Azerbaijani minister.

It is due to the fact that oil prices for a long time stayed at the rate of production cost in many countries, he said, adding that it is the reason why the price will grow as the global economy develops.

"I think it will be a very slow growth running with temporary declines, but in general, the trend will head towards the growth at any rate," added the minister.

"I doubt that countries possessing a potential to raise oil production will increase production very rapidly and quickly," he said. "The trend will have remained till the end of the year and I believe it can be even stronger in the following year."


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