Saudi Oil Minister Ali al-Naimi said on Tuesday he was confident more nations would join a pact to freeze output at existing levels in talks expected next month, but effectively ruled out production cuts by major crude producers anytime soon.
Addressing the annual IHS CERAWeek conference in Houston, Naimi told global energy executives that markets should not view the nascent agreement as a prelude to production cuts, Reuters reported.
"That is not going to happen because not many countries are going to deliver," Naimi said during a Q&A session after his speech broadly restated the rationale behind Saudi Arabia's decision to maintain output in the face of tumbling prices.
"Even if they say that they will cut production, they will not do it. There is no sense in wasting our time seeking production cuts. They will not happen."
He added that the growing support for the freeze and stronger demand should over time ease a global glut that has pushed oil prices to their lowest levels in more than a decade.
"A freeze is the beginning of a process. If we can get all the major producers to agree not to add additional barrels then this high inventory we have now will probably decline in due time."
Oil prices fell some 4% after Naimi's comments. Traders have been skeptical whether freezing production near record levels could support the market.
After a surprise meeting a week ago, Saudi Arabia, Russia, Venezuela and Qatar agreed to freeze production at January levels and Naimi predicted more support from other countries.
Venezuelan Oil Minister Eulogio Del Pino said he was seeking to convene a meeting of major OPEC and non-OPEC producers in mid-March, with more than 10 expected to sign on to the agreement. Naimi did not touch on Iran who is openly reluctant to jump on the production freeze bandwagon, as it focuses on ramping up output after years of sanctions.
Mohammed bin Hamad al-Rumhy, Oman's oil and gas minister, suggested Iran could be exempted from any Organization of Petroleum Exporting Countries' agreement because it suffered sanctions.
"One solution is that Iran is given time to ramp up production. This is up to OPEC and OPEC countries to decide," Rumhy said.
This is while Iran has explicitly declared that it will take its production level back to the pre-sanctions level and does not need anybody's permission to do so.
Naimi also pointed to OPEC's Saudi-led decision to keep pumping for market share against higher-cost producers such as the US shale companies, which strategy experts believe will not impact shale output in the long run.
"We have not declared war on shale or any given country or company, contrary to all the rumors," Naimi claimed.
Iraq Favors Oil Deal
The success of a proposal for the world’s biggest producers to freeze crude output hinges on unified support, Iraq’s oil minister said, a day after fellow OPEC member Iran called the plan “ridiculous”.
“If some people freeze and others raise, then this is not a good policy,” Iraq’s Oil Minister Adel Abdul Mahdi said in an interview in Tokyo on Wednesday. “So we have to reach a complete agreement.”
Iran’s Oil Minister Bijan Namdar Zanganeh said the accord placed “unrealistic demands” on the Persian Gulf producer, the ministry’s news agency Shana reported on Tuesday.
Iraq is ready to cooperate on the output freeze, Falah al-Amri, chairman of Iraq’s state Oil Marketing Organization, known as SOMO, said in Abu Dhabi on Wednesday.
OPEC members and non-OPEC nations “have to act together” to combat falling prices, Amri said. Iraq is producing 4.7 million barrels of oil a day, with exports at 4 million barrels a day. That includes the northern Iraq region controlled by the Kurdistan Regional Government. Oil markets have a “huge oversupply” that will take “months and years” to balance out, Amri said.
"Industry spending cuts in investment because of low prices will take two or three years to result in falling supply," he added.
Iraq is negotiating with oil companies on their production targets after asking them to reduce their 2016 spending plans because of lower oil prices and cuts in government revenue.
Middle East energy producers reduced capital expenditures by 13% last year, led by Iraq because of “severe budgetary strain” due to the costly war against foreign-backed terrorists, the IEA said in a report on Monday.
