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Oil retreats despite Saudi-Russia deal to freeze output

16 February 2016 20:35 (UTC +04:00)

Baku-APA. Despite rising early Tuesday with news of a Russia-Saudi Arabia agreement to freeze crude output levels, oil prices later fell as Iran hinted it is unlikely Tehran would join the consensus, APA reports quoting Anadolu agency.

Saudi Arabia, Russia, Qatar and Venezuela met in Doha on Tuesday and agreed to freeze individual oil productions at January 11 levels, provided that other major oil producing countries would do the same.

Oil market's at first reacted favorably as the international benchmark Brent crude and the American benchmark West Texas Intermediate increased by 3.4 percent and 2.7 percent, respectively.

But both benchmarks lost their gains after Iran hinted that it would not go along with the agreement, since the deal could force Tehran to trim production.

Brent crude dipped to $32.16 per barrel, sliding nearly 10 percent, while WTI fell to $28.71 a barrel, marking an almost 9 percent decline, from daily highs before 1800GMT Tuesday. "Iran will not overlook its [production] quota," Iranian Oil Minister Bijan Zangeneh was quoted as saying by Iran's energy information network Shana.

Tehran has been adamant to regain its share in the global oil market, which dramatically fell in recent years due to western sanctions.

Zangeneh said a tripartite ministerial meeting will be held Wednesday in Tehran to discuss the current oil market with his Iraqi and Venezuelan counterparts.

Experts told Anadolu Agency that it is unlikely Iran will make any adjustments to its oil production in the post-sanctions era.

"Iran … can't join this endeavor officially," said Cyril Widdershoven, senior vice president at consulting firm MEA Risks LLC. "Iran wants to produce even more to export higher volumes to Asia and Europe," he added.

Other analysts agreed.

"Iran will not do this ... they need the money," said Sijbren de Jong, strategic analyst at The Hague Centre for Strategic Studies. "Above all, Iran wants to increase its export volume," he added.

The experts also emphasized that production freezes by Russia and Saudi Arabia would not have a significant affect on the oil market or prices, since both countries have been pumping at record-high levels.

"Saudi Arabia did not change a thing ... it is a production freeze, not a production cut. They are not trimming output, only keeping it at the same levels, which is not higher than it was in 2013,” Widdershoven said.

“Even Russia is not able to really cut during winter,” he added. "Output is left unchanged, so no cut, nor an increase,” according to De Jong. “In the short term, it [the agreement] won’t change anything."