Oil output freeze can reduce market oversupply: Russian energy min.

Russia’s Energy Minister Alexander Novak says if major oil producers agree on an oil output freeze, this measure will help decrease current overproduction that has glutted global markets.

According to a report by Russia’s RIA Novosti, Novak made the remarks after Iran held a four-sided meeting in Tehran last Wednesday, which was attended by oil ministers from Iran, Iraq, Venezuela, and Qatar.

Novak noted that Qatar and Venezuela in addition to Russia and Saudi Arabia have agreed to freeze oil production during a recent meeting in Qatar’s capital, Doha.

“If there are no additional supplies, then this imbalance and overproduction will decrease at a minimum rate of 1.3 million barrels per day,” Novak said, adding, “It will be a positive signal which is clear for the market of what will happen and not violate any market principles."

Novak stated that Iran has a constructive attitude toward the proposals made for an oil production freeze, but has not expressed readiness to join the arrangements yet.

The Russian energy minister said an oil price of USD 50 per barrel would suit consumers and exporters in the long term.

“… There is a delta between supply and demand of about 1.3 million. That is, there is no secret or mystery. If supply and demand came together, then there would be grounds for a rise in prices to USD 50-60 per barrel. It would be very useful to the economies of most OPEC countries. It is unlikely that the price will be higher than USD 60 per barrel, because as soon as it jumps up, we may observe growth in US production, which, respectively, compensates for the efforts of the rest of the world to reduce supply," said Ivan Kapitonov, a senior fellow at the Energy Policy Branch of the Institute of Economics of the Russian Academy of Sciences.

He added, “The point is to follow the demand, which is growing. It's possible to slowly increase oil production. The overproduction has happened due to the fact that the Saudis have squeezed the US from this market. In fact, this goal has been achieved, and if we don’t see production growth in the US, the market will be stable.”

According to Kapitonov, market “stabilization and further growth are possible in the second half of 2016.”

He added, however, that even in the case of an increase in prices, it will be unlikely to achieve the level of USD 70 a barrel.

“Due to the fact that inflation affects it, we will see USD 70 and USD 80 per barrel, but not this year, maybe in two years,” Kapitonov concluded.

Iran hosted a quadripartite meeting last Wednesday attended by the visiting oil ministers of Venezuela, Iraq and Qatar.

The participants discussed measures to boost oil prices with their discussions ending in an agreement for OPEC and non-OPEC oil producers to maintain their current output ceiling to help stabilize the market and boost the prices.

“It was decided that OPEC and non-OPEC producers keep their current ceiling to help stabilize the market and improve the prices to the benefit of both the consumers and the producers,” Iran's Oil Minister Bijan Zangeneh told reporters after the meeting, adding, “This issue is supported by the Islamic Republic of Iran.”

The Iranian oil minister also stated that this is the first step and the next steps to improve the current market conditions should be taken likewise. 

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