The two largest crude oil producers, Saudi Arabia and Russia respectively, have come to an agreement to freeze oil production at January’s rates. Although the deal is yet to be finalized, this agreement marks the first time in 15 years OPEC and non-OPEC oil producers have come together.
Saudi Oil Minister Ali Al-Naimi spoke in Doha, Qatar after meeting with Russian Energy Minister Alexander Novak. He proclaimed the deal to fix oil production of the agreeing nations (Saudi Arabia, Russia, Qatar, and Venezuela) is the, “beginning of a process…to stabilize and improve the market”. Naimi further clarified the purpose of this deal saying, “We don’t want significant gyrations in prices. We don’t want a reduction in supply. We want to meet demand. We want a stable oil price.”
OPEC announced over a year ago that they would refuse to cut production to inflate prices, thus oil is roughly 70% cheaper then its highest point in 2014. Goldman Sachs Group Inc. speculated last week that with oil production continuing to surpass demand, prices could fall below $20 a barrel. Both Alexander Novak and Ali Al-Naimi have made comments on how they would consider cutting production to reduce prices if other nations could agree to terms. However, Russia may not have a practical method to reducing their outflow. Due to Siberia’s, Russia’s premier oil region, incredibly harsh winters, halting the flow of oil may cause the pipes to freeze. This dilemma could potentially hamper Russia’s long-term production of oil and gas. Frozen pipes coupled with the fact Russia does not have the storage facilities available to stockpile oil makes it unlikely for them to agree to quell production.
The fifth largest producer of oil within OPEC, Iran, told the organization in December that they will not be capping their production. Rather they detailed plans to increase their production and exports by roughly 1 million barrels a day this year. This announcement comes as no surprise, as Iran just last month had their international sanctions lifted, leading to their first Europe-bound crude oil being loaded this week.
Iraq similarly is boosting their oil production as they reached a national record of 4.35 million barrels a day last month. An unnamed official, however, went on record stating that Iraq is willing to freeze their production, pending on other nations committing to the deal known as the Doha Accord.
Qatar is tasked with monitoring the output freeze agreement; according to Qatar’s Energy Minister Mohammad bin Saleh al-Sada. Given the recent history between Russia and Saudi Arabia, close monitoring may be necessary. In addition to supporting conflicting sides in the Syrian civil war, Saudi Arabia has been selling crude oil to Eastern European nations that have historically bought from Russia. Also, Russia surpassed Saudi Arabia in oil exports to China, further adding to the two nations fierce competition for market share in the past few months.