OPEC Focus Shifting From Freeze to Output Ceilings

OPEC Focus Shifting From Freeze to Output CeilingsOPEC Focus Shifting From Freeze to Output Ceilings

As officials from the Organization of Petroleum Exporting Countries shuttle between Tehran, Moscow and Paris in preparation for an informal meeting in Algiers, the focus of their efforts appears to be moving from a production freeze to voluntary output caps.

OPEC, led by Saudi Arabia, and other producers are considering a route to a deal in the Algerian capital this month that involves each country agreeing it will not raise its production above a certain ceiling, instead of freezing at current levels, Bloomberg reported.

 The option, one of the several under consideration, could be a way to overcome opposition from members including Iran by allowing them to join an agreement while fulfilling plans to boost production.

“The freeze negotiations are morphing into negotiations about production quotas,” said Olivier Jakob, managing director of Zug, Switzerland-based consultant Petromatrix GmbH. “Most countries are asking for a production level which includes some room for continued increase.”

Iran continues to resist any agreement that would stop it restoring output curbed by sanctions.

While individual output ceilings are one route, other options remain including a stricter freeze, or even postponing any deal until OPEC gathers in late November in Vienna. Saudi Arabia and Russia have scheduled bilateral talks for October, which could help to fine-tune negotiations.

Alexander Novak, the Russian energy minister has said his country is ready to cap output at the level of any month in the second half of this year, a period that so far has delivered record volumes from both Russia and OPEC.

“Iran, Libya, Nigeria and potentially Iraq remain the stumbling blocks,” for such a deal Giovanni Staunovo, an analyst at UBS Group AG in Zurich, said. “They all want their exemptions.”

A freeze that translates into a theoretical increase of supplies is not going to be good for price sentiment, said Jakob. “Any true OPEC supply stabilization needs to come with a cut of supply from Saudi Arabia,” he said.