It’s starting to look like we might see an oil output freeze agreement produced in Algeria later this month, after the three most important petrostates involved in the potential deal—Saudi Arabia, Russia, and Iran—have all signaled a willingness to intervene in the market to help induce a price rebound.
First, let’s see what Iran’s oil minister had to say after meeting with OPEC’s secretary general. Reuters reports:
On Tuesday, Iranian Oil Minister Bijan Zanganeh met OPEC Secretary-General Mohammed Barkindo in Tehran and said he would support any measure to stabilize crude prices at around $50-60 per barrel. “Iran wants a stable market and therefore any measure that helps the stabilization of the oil market is supported by Iran,” Zanganeh said.
That’s the most we’ve seen Tehran embrace market intervention in quite some time. Remember, Iran has been racing this year to boost its oil output back up to the ~4 million barrels per day level it produced back before Western sanctions crippled its most important industry. It’s now nearly back to those pre-sanctions numbers, and is therefore more willing to accept a cap on its production for the simple reason that it isn’t capable of producing much more than it currently is.
And Iran’s cooperation is vital for the success of this freeze deal: its refusal to sign on when this agreement was first negotiated back in Doha in April was what ultimately pushed the Saudis to back out at the last minute, sinking the whole endeavor.
The Saudi and Russian energy ministers also met this week to discuss the freeze, and released a statement that sounded sanguine about cooperating in the oil market. From Reuters, the relevant part:
…[T]he Ministers noted that constructive dialogue and close cooperation among major oil producing countries is crucial to oil market stability to ensure sustainable levels of investment for the long term. Therefore, the Ministers agreed to act jointly or with other producers.
Saudi Arabia and Russia are the world’s #2 and #3 oil producers, respectively (trailing only shale-rich America), so between their statement and Iran’s change of tune, it seems as if the stars are aligning for a deal to be worked out three weeks from now in Algiers. But let’s get something straight: capping output won’t suddenly erase the glut of crude that precipitated the collapse in oil prices these past two years. This is merely the best OPEC can manage these days, a fact that exposes just how vestigial the cartel has become.