The agreement by the top four global oil producers to freeze individual outputs at January levels is not excepted to have major implications on oil prices.
Mohammed Saleh Al Sada, Qatari energy and industry minister said on Tuesday that four major oil producing countries, Russia, Venezuela, Saudi Arabia and Qatar, agreed to hold their outputs based on levels as of Jan. 11, with the condition that the deal will be applied “contingent on other major producers follow suit.”
“It would appear Iran would need to be on board before these countries enacted this agreement – something that is very unlikely currently,” Harry Tchilinguirian, the head of commodity markets strategy at BNP Paribas told Anadolu Agency.
Markets turned their eyes to other major OPEC producers such as Iran and Iraq. OPEC President Mohammed al-Sada will discuss a plan to cap oil production with ministers from Iran, Venezuela and Iraq at a meeting in Tehran on Wednesday.
Underlining that the rumors of producer cooperation to stabilize the oil price keep building, Tchilinguirian said that for now, these statements are just rumors.
“In any event, we are talking about a freeze in production which will do nothing to help oil price - we need a large cut in supply,” the expert said.
OPEC countries -- Venezuela, Saudi Arabia and Qatar are also members -- currently produce about 40 percent of the world's crude oil as Russia produces around 10.5 million barrels of oil per day (mbpd). The world is using around 93 mbpd.
According to IEA's February oil market report, 'on the assumption – perhaps optimistic - that OPEC crude production is flat at 32.7 mbpd in first quarter of 2016, there is an implied stock build of 2 mbpd followed by a 1.5 mbpd build in the second quarter'. This means that the main driver of the low prices, the oil glut, will be present on the market despite a freezing agreement.
Another expert, Vitaly Kazakov, director of Master of Economics in Energy and Natural Resources (MERE) at Moscow-based New Economics School, also agrees that Tuesday’s agreement will have no implications on oil markets.
Kazakov pointed out that some Russian officials believe that oil price falls because of the speculators, such as Igor Sechin, head of Russia’s largest oil company Rosneft.
Sechin said last week during a London conference that today’s financial technology implies that decisions are often made by robots on trading floors and by the software that manages them and impersonally responds to any instantaneous changes of the situation, which changes in the course of the trading, or information about the movement of oil reserves.
“Once you live in this paradigm, and believe that the oil price fell due to speculation rather than fundamentals, your logical response should be trying to change the market psychology,” Kazakov said.
“And this is what we see, an attempt to calm the markets, scare the 'speculators', make people believe the producers have real powers to fight the market forces,” Kazakov added.
Stressing that there was an idea to make Russia cooperate with OPEC more closely some years ago, Kazakov said this could not be realized as Russian oil companies have private investors, whose interests may be different than those of the Russian state.
Meanwhile, Marcel Salikhov, the head of the economics department at the Moscow-based Institute for Energy and Finance, underlines that Tuesday’s agreement was below market expectations.
Explaining that the announcement still shows that Russia and OPEC may cooperate and it's a positive sign, Salikhov said the interests of the counties, however, were just too different to negotiate meaningful reduction in supply in order to support prices.
“Maybe it's not just the time,” the expert said.
By Emre Gurkan Abay from Moscow
Anadolu Agency
gurkan.abay@aa.com.tr