Oil ministers from Saudi Arabia, Russia, Venezuela and Qatar have reached an agreement to freeze their country’s output of crude.
But there is a big condition – they will freeze only if other major producers do the same.
Talks will now take place with Iran and Iraq who have been reluctant to pump less.
There was encouraging word from Baghdad. An Iraqi oil ministry source told news agency Reuters that Iraq is ready to commit to freezing its oil output at January levels if a deal is reached among OPEC and non-OPEC countries.
Iran, Saudi Arabia’s regional arch rival, has pledged to steeply increase output in the coming months to regain market share lost during years of international sanctions.
Saudi Oil Minister Ali al-Naimi said freezing production is enough for now: “We don’t want significant gyrations in prices. We don’t want reduction in supply. We want to meet demand and we want a stable oil price. We have to take a step at a time.”
He called this “the beginning of a process” to be assessed in the next few months to see what is needed “to stabilise and improve the market”.
Prices slumped – from well over $100 a barrel to around $30 – after Saudi Arabia and its OPEC Gulf allies raised production to fight for market share in the face of a boom in US shale oil output.
The agreed freeze is at January 2015 levels when Saudi Arabia produced 10.2 million barrels of crude a day while Russia pumped nearly 10.9 million barrels, a post-Soviet record.
Saudi Arabia and Russia are the world’s two biggest crude producers, but with prices so low the budgets of both countries are being squeezed.
Russia has been talking tough up to now so the fact that it took part in the meeting at all is a positive sign, but we are still a long way away from the production cuts which would be needed to push up oil prices from their recent lows, which is why they picked up only a little on this news on Tuesday and even that effect didn’t last long.
this is more accurate "Russia & Saudi to freeze oil production output at record high" instead of January's levels pic.twitter.com/MXr8Mtcr0C— Nour E. Al-Hammoury (@NourHammoury) February 16, 2016
Why now and what happens next?
euronews: “First, please explain the timing of this. Oil prices have been falling for over a year, what’s prompted this apparent attempt to support prices now?”
Nour Eldeen Al-Hammoury: “I believe producers have always assumed that oil would regain value through the global economy picking up and demand increasing through the Northern Hemisphere winter, but this has not happened. They now know that they need to act. They can’t influence the global downturn, but they can work together to manage supplies and support prices. This is the first step, this meeting needed to happen and we think that the start of the dialogue is positive.”
euronews: “What are the consequences of this? For the moment these four oil producing countries have agreed to freeze output levels, are we about to see an actual reduction in output any time soon; and what signal is this move sending to the markets?”
Nour Eldeen Al-Hammoury: “The first move has been made. We now know that four major players want to work together to look at supply. We were not expecting a reduction in supplies, not from this meeting, but it sets the agenda going forward. Everyone knows that, at the moment, there is no alternative to oil, so looking at supply is the best way to get a correct market price.
“So this is a positive signal to the market. I am also not surprised that the prices have dropped today, but we will be looking for further cooperation and action by OPEC and by most of the producers.”