MARKET WATCH: Reaction mixed to four producers’ agreement
Russia, Saudi Arabia, Venezuela, and Qatar announced an agreement to freeze production at existing high levels if other producers will do the same. Response to the announcement varied widely among analysts, many of them questioning how Iran and other key producers will react.
During Feb. 16 trading, Brent crude for April delivery rose to $33.81/bbl while US light, sweet crude rose to $29.81/bbl in early trading on the New York market. Floor trading was closed on the New York Mercantile Exchange Feb. 15 in honor of Presidents’ Day.
Venezuela had suggested a production freeze to help support oil prices given a global oversupply of crude. Venezuela Oil Minister Eulogio del Pino plans to meet Iraqi and Iranian oil officials on Feb. 17 in Tehran.
“Freezing now at the January level is adequate for the market,” said Ali al-Naimi, Saudi Arabia’s oil minister. “We don’t want significant gyrations in prices, we want to meet demand. We want a stable oil price.”
Al-Naimi called the agreement by the four producers “simply the beginning of a process to assess in the next few months and decide whether we need other steps to stabilize and improve the market.”
Analysts noted, however, that the agreement still needs the cooperation of Iran and Iraq, where major oil production growth is likely this year. Iran crude exports recently arrived in Europe following the lifting of nuclear-related Western sanctions in January.
Barclays Research analysts issued a note saying that the basic outline of the agreement is highly contingent on other producers joining.
“If the other producers do not agree, then very little will change, but even if they do, any significant price recovery risks increasing the incentives for US shale output to start growing again,” said Miswin Mahesh of Barclays in London. “Thus, even if the agreement is successful, the upside for oil prices that would result looks limited, and OPEC still faces the dilemma of aiming for either higher prices or market share, but is unable to achieve both.”
The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was $28.44/bbl, up $1.70.
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