Oil Freeze Talks Hit Snags

Oil Freeze Talks Hit SnagsOil Freeze Talks Hit Snags

Saudi Arabia has thrown into doubt an agreement to freeze output with some of the world’s biggest crude producers, demanding Iran’s participation in what would be the first global oil deal in 15 years.

At a meeting of energy officials in Doha, Qatar, early on Sunday, more than a dozen countries from inside and outside the Organization of Petroleum Exporting Countries, including Russia, Venezuela and Iraq, were poised to agree to hold output at January levels, according to a draft agreement seen by the Financial Times.

But by afternoon, OPEC delegates were skeptical about the prospects for a deal, with Saudi Arabia—OPEC’s largest producer and the group’s de facto leader—pushing for changes. Two OPEC delegates said Iran’s involvement in any deal was still a sticking point.

“They are struggling with the language for a freeze but we are hopeful for a deal,” said one OPEC delegate.

Tehran has repeatedly said it will not agree to restrict output because sanctions against its oil industry were only lifted in January. Iran’s Oil Minister Bijan Namdar Zanganeh did not attend the talks. The participation of the country's OPEC governor was also canceled in a last-minute decision.

Before Sunday’s meeting, OPEC delegates had indicated the deal would go ahead without Iran’s immediate participation, but Saudi Arabia’s stance against its regional rival appears to have hardened.

Oil ministers in Doha reconvened on Sunday afternoon to see whether a deal could still be reached.

The draft deal circulating among participants in the morning stipulated that output restraint would last until October, when ministers would meet again in Russia to assess their efforts toward assuring “a progressive recovery of the oil market”, the draft said.

“With the biggest drop in oil prices since 2008, the global oil industry is facing a serious challenge,” the draft added.

Saudi Arabia, which in late 2014 said it did not care if oil prices slid to $20 a barrel, has recently indicated a shift in its approach amid pressure on the country’s finances.

A senior OPEC delegate said last month that the Saudis would comply, even without Iran’s involvement. But the deputy crown prince, Mohammed bin Salman, told Bloomberg last week that Saudi Arabia would not sign up without Tehran.

Speaking earlier on Sunday, Carlos Pareja, Ecuador’s petroleum minister, said a deal was needed.

“I believe that the worst thing we can do now is not to do anything,” he said, adding that if the market was left to rebalance of its own accord, it would hurt the oil industry worldwide.

The earlier draft said the implementation and monitoring of an output freeze agreement would be “under the principles of good faith”. A monitoring committee consisting of two oil ministers from OPEC nations and two from non-OPEC countries would be set up.

Producer nations wanted a deal to help stem nearly two years of falling prices, which have decimated many of their national budgets and stoked fears of a deflationary spiral in the global economy.

Oil analysts were already skeptical of the impact of any freeze on oil market balances ahead of Sunday’s meeting, with most countries producing at record levels in January, while Iran and Libya have vowed to increase their output.

But others saw the freeze as a stepping stone that could buy them time as supply and demand starts to come back into alignment, with US shale output now falling and consumption picking up due to the drop in price.

The last time OPEC struck a deal with producers outside of the group was in 2001 when Russia, Mexico, Oman, Angola and Norway promised to cut supply by a total of 500,000 barrels a day.