A group of petrostates has set a date for a meeting to discuss freezing their collective crude output at current levels, and oil prices have spiked upwards as a result. Did reading that give you déjà vu? You’d be forgiven if you said yes, but this is actually new news: the head of OPEC said oil ministers from many of the world’s biggest petrostates will meet in Doha one month and a day from today to try and build on a preliminary agreement made between Saudi Arabia, Russia, Venezuela, and Qatar last month. The FT reports:
Mohammed Bin Saleh Al-Sada, who is also president of the Opec producers’ group, said in a statement on Wednesday that the April 17 gathering of ministers “comes as a follow-up to the meeting that was held last month in Doha”. […]
About 15 Opec and non-Opec countries — accounting for two-thirds of global oil output — supported this push, the statement added. […]
For weeks back-channel talks and meetings have taken place to gather support for the freeze, dubbed the Doha initiative, to stabilise the oil price collapse.
The previously proposed production freeze plan between those aforementioned four petrostates crucially was contingent on others joining. But that left it open to a broadside from one of OPEC’s own—Iran—which has been very public about its intentions to boost production by as much as one million barrels per day this year, now that Western sanctions have been lifted. The Iranian president’s chief of staff said the country wouldn’t entertain the notion of restricting production until it reached pre-sanctions levels. And judging by some of the comments made from OPEC sources, that alone should have been enough to clip the wings of this freeze plan before it ever got off the ground.
But now it seems as if some parties involved might be willing to freeze their own output even without Iran’s cooperation. The WSJ reports:
Saudi Arabia, Kuwait and their allies would limit their oil output even if Iran doesn’t follow suit, OPEC officials said, a change in tone that paves the way for curbs on crude production to be set next month…Iran’s refusal is “not a deal beaker,” said an OPEC official from a Persian Gulf Arab country.
According to Reuters, Russian energy minister Alexander Novak has echoed this sentiment, saying a production freeze is possible with or without Tehran. The Iranian news agency Shana paints Novak as a man sympathetic with Tehran’s current position, quoting him as saying that “since Iran’s production decreased under sanctions, we totally understand Iran’s position to increase production and revive its share in the global markets.”
We’re still nearly five weeks away from a meeting to discuss a possible freeze (not a cut, as any involved petrostate will be quick to point out), and yet markets already responded strongly to this latest batch of news. Brent crude jumped over 4 percent in trading, and America’s WTI benchmark climbed more than $2 per barrel.
Does this reaction tell us something about the true motivation of all of these freeze discussions over the past month? Actually pulling off such a plan will be difficult, not only because monitoring individual producers’ output is notoriously difficult, but also because U.S. shale producers stand in the wing to tap a massive “fracklog” of wells should prices start mounting a comeback. There are plenty of reasons to be skeptical about how effective actually implementing this freeze plan could be, but you can’t deny that simply talking about it can have an immediate (and if you’re a producer, positive) impact.