Russia says its ready to freeze oil output to push up prices

By bne IntelliNews February 17, 2016

Russia is ready to freeze the output of oil should other major producers support the measure, Minister of Energy Alexander Novak said on February 16 after closed-doors talks in Doha with the energy ministers of Qatar, Saudi Arabia, and Venezuela. According to Novak, there was a preliminary agreement to freeze output at January's levels.

Oversupply on the global oil market has led to a 70% drop in oil prices, driving Russia into the second year of recession and shattering long-term development plans that were based on oil prices of over $100 per barrel.

According to the Financial Times, Saudi Arabia has provisionally agreed to freeze oil output, after more than 15 months of opposition to unilaterally cutting oil supplies.

The news of the meeting and preliminary agreement pushed up oil prices by 6% to over $33 per barrel on February 16.

However, the decision to freeze output is not final and is likely to face strong headwinds: Qatar's Energy Minister Mohammad bin Saleh al-Sada said the deal to freeze output was still dependent on participation of other major producers, which could complicate efforts.

Most notably, Iran, which is back on the oil market this year after the lifting of Western sanctions, repeatedly stated that it will seek to revive its oil production.

Strong geopolitical tensions also persist between Saudi Arabia, Iran, and Russia over the civil war in Syria, in which Russian air forces are actively supporting the regime of Bashar Assad, while Riyadh supports the opposition forces.

For Russia, freezing output would not require extraordinary efforts, as this year's output was planned at 2015 levels and a number of country's oil majors expressed readiness to limit their production.

However, in 2015 industry experts doubted Russia's ability to significantly cut oil prices in order to influence prices, due to limited storage capacity and the need to continuously pump in harsh weather conditions at many key oilfields.

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