ANKARA/DUBAI – Iran on Wednesday stopped short of offering to restrain oil output included in a worldwide pact to freeze production to prop up prices, since it really wants to recapture the market share it lost during years of sanctions.
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Oil ministers from Saudi Arabia, Russia, Venezuela and Qatar announced on Tuesday an agreement to freeze their oil output levels provided other major producers follow suit.
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Iran’s stance will complicate talks on output levels after a surprise compromise now between two of the world’s top exporters – non-OPEC Russia and the group’s leader Saudi Arabia – to freeze output at January levels, near their historic highs.
The first mooted global oil pact in 15 years has to date didn’t impress the marketplace, which had expected a production cut rather than a freeze that may even turn into an increase if Iran wins special terms from fellow OPEC members.
“This may be the first step along with other steps ought to be taken. This cooperation between OPEC and non-OPEC members to stabilize the market is good news. We support any effort to stabilize the marketplace and prices,” Iranian oil minister Bijan Zanganeh said, based on the Shana news agency.
Zanganeh spent around two hours with oil ministers from Iraq, Qatar and Venezuela in Tehran on Wednesday. The visitors, who flew from Doha, where the output deal was clinched , left the Tehran meeting without comment.
Oil extended gains following a end of the meeting. Brent was up US$2.25, or 7 percent, at US$34.43 a barrel by 1:25 p.m. EST (1825 GMT).
U.S. crude was trading US$1.65, or 5.7 per cent, higher at US$30.69 a barrel.
Zanganeh spoke to Iranian media afterwards and chose his words carefully to avoid mentioning Iran’s position on freezing its own output.
“We were built with a good meeting today and the report of yesterday’s meeting was given to all of us. We support cooperation between OPEC and non-OPEC members.
“I was told that Russia because the world’s biggest oil producer, Oman and other countries will be ready to join. This can be a positive step, we have a positive method of it, this is an excellent start,” he explained.
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ILLOGICAL DEMANDS
OPEC Gulf producers Qatar, Kuwait and the UAE, as well as Venezuela said they would join the Russian-Saudi pact, aimed at tackling an increasing oversupply and helping prices recover from their lowest in on the decade.
But Iran may be the major obstacle to the first joint OPEC and non-OPEC deal since 2001, having pledged to improve output sharply to regain market share lost during sanctions.
“Asking Iran to freeze its oil production level is illogical … when Iran was under sanctions, some countries raised their output plus they caused the stop by oil prices.” Iran’s OPEC envoy, Mehdi Asali, told the Shargh daily newspaper before the talks on Wednesday.
The sanctions, imposed over Iran’s nuclear program, were lifted last month after a contract with world powers, allowing Tehran to resume selling oil freely in international markets.
Iran exported around 2.5 million barrels per day of crude before 2012, but sanctions cut that close to 1.1 million bpd.
Tehran has pledged to boost supply by around 1 million bpd within the next 6-12 months and on Wednesday some Iranian banks were reconnected to the SWIFT global transaction network, that will let it facilitate banking business.
SPECIAL TERMS
Iranian barrels would only increase the global glut, that has been fueled by U.S. shale output along with a decision by Saudi Arabia to pump at full capacity to drive higher-cost producers bankrupt.
The world has already been producing more than 1 million bpd than it consumes, with oil stockpiles at record levels.
As an effect, prices fell below US$30 per barrel in January from as high as US$115 in mid-2014, hammering the finances of Russia, Saudi Arabia and other producers.
Brent oil futures rose over 7 per cent on Wednesday after losing as much as 4 per cent yesterday to trade near US$35 per barrel..
“A freeze is not the same as a cut, and somewhat disingenuously, keeping crude production at January levels actually implies higher-than-expected annual output … and so can hardly tackle the present market oversupply,” JBC Energy said inside a note.
Two non-Iranian sources close to the OPEC discussions told Reuters on Tuesday that Iran may be offered special terms as part of an output freeze deal. “Iran is returning to the marketplace and requires to be given a unique chance, but it also needs to make some calculations,” said one source.
The sources did not elaborate on the special terms, which could be everything from setting limited production increases to linking future output rises to a recovery in oil prices.
Olivier Jakob from Petromatrix consultancy asserted if Saudi Arabia were to freeze output at January levels, the kingdom will have to cut exports by 500,000 bpd in the summertime months, when it burns more oil for power generation in your own home.
“The production freeze can therefore be viewed as an un-official way for Saudi Arabia to make some room for the restart of the Iranian exports,” he said.
The last global deal in 2001 saw Saudi Arabia persuade Mexico, Norway and Russia to contribute to production cuts, although Moscow didn’t follow-through and raised exports instead.
? Thomson Reuters, with files from Bloomberg
