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 The Saudi, Russian, Qatari and Venezuelan oil ministers announced
the proposal after a previously undisclosed meeting in Doha. It
could become the first joint OPEC and non-OPEC deal in 15 years,
aimed at tackling a growing oversupply of crude and helping prices
recover from their lowest in over a decade.
Saudi Oil Minister Ali al-Naimi said freezing production at January
levels - near record highs - was an adequate measure and he hoped
other producers would adopt the plan. Venezuelan Oil Minister
Eulogio Del Pino said more talks would take place with Iran and Iraq
on Wednesday in Tehran.
"The reason we agreed to a potential freeze of production is simple:
it is the beginning of a process which we will assess in the next
few months and decide if we need other steps to stabilize and
improve the market," Naimi told reporters.
"We don't want significant gyrations in prices, we don't want
reduction in supply, we want to meet demand, we want a stable oil
price. We have to take a step at a time," he said.
Oil prices <LCOc1> jumped to $35.55 per barrel after the news about
the secret meeting but later pared gains to trade below $34 on
concerns that Iran may reject the deal.
OPEC member Iran, Saudi Arabia's regional arch rival, has pledged to
steeply increase output in the coming months as it looks to regain
market share lost after years of international sanctions, which were
lifted in January following a deal with world powers over its
nuclear program.
"We have not yet reached our level of pre-sanctions production. So
when we get there, we will be on an equal level, then we can talk,"
a senior source familiar with Iran's thinking told Reuters.
"Our situation is totally different to those countries that have
been producing at high levels for the past few years."
The fact that output from OPEC kingpin Saudi Arabia and non-OPEC
Russia - the world's two top producers and exporters - is near
record highs complicates any agreement since Iran is producing at
least 1 million barrels per day below its capacity and pre-sanctions
levels.
RIVALRY
"The agreement (if successful) should support oil prices but there
are reasons to be cautious. Not all OPEC members have signed up to
the deal - notably Iran and Iraq. History would also suggest that
compliance may be an issue," said Capital Economics' analyst Jason
Tuvey.
Iraq, another major OPEC producer, also has long said it expected
its production to rise further this year but last month it said it
was ready to reduce its fast-growing output if all OPEC and non-OPEC
members agreed.
Also complicating any potential agreement is the geo-political
rivalry in the Middle East between Sunni Muslim power Saudi Arabia
and Shi'ite Iran. Saudi Arabia and its Gulf allies are fighting
proxy conflicts with Russia and Iran in the region, including in
Syria and Yemen.
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In Syria's five-year-old civil war, Riyadh politically and
financially backs some rebel groups battling President Bashar al-Assad's
government, which has gained the upper hand with the help of Russian
warplanes and Iranian-backed Shi'ite militias.
The Doha meeting came after more than 18 months of declining oil
prices, knocking crude below $30 a barrel for the first time in over
a decade from as high as $115 a barrel in mid-2014.
The slump was triggered by booming U.S. shale oil output and a
decision by Saudi Arabia and its OPEC Gulf allies to raise
production to fight for market share and drive higher-cost
production out of the market.
Saudi Arabia has long insisted it would reduce supply only if other
OPEC and non-OPEC members agreed, but Russia - the world's biggest
oil producer and No.2 exporter - has said it would not join in as
its Siberian fields were different from those of OPEC.
The mood began to change in January as oil prices fell below $30
percent barrel.
While Venezuela has been the hardest-hit producer, current oil
prices are a fraction of what Russia needs to balance its budget as
it heads towards parliamentary elections this year. Saudi finances
are also suffering badly, running a $98 billion budget deficit last
year, which it seeks to trim this year.
But while talking about potential cooperation with OPEC, Russia
raised its output to a new record high in January.
"Even if they do freeze production at January levels, you have still
got global inventory builds which are going to weigh on prices. So
whilst it's a positive step, I don't think it will have a huge
impact on supply/demand balances, simply because we were
oversupplied in January anyway," said Energy Aspects' analyst
Dominic Haywood.
(Additional reporting by Alex Lawler, Ahmad Ghaddar; Writing by
Dmitry
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