Oil producers’ moves to stabilize markets will fail - analysts

The world's top oil producers Saudi Arabia and Russia agreed on 16 February to freeze oil output at January levels in a bid to stabilize an oversupplied market. This is the conclusion of a meeting brokered by Qatar in Doha. Oil prices have been historically low over a period of several months at around 30 dollars a barrel.

Oil meeting in Qatar Reuters/Naseem Zeitoon

Only four major oil producers were involved in the deal, Russia, Saudi Arabia, Qatar and Venezuela - countries that are very much dependent on oil to sustain their respective economies.

Oil ministers of these countries said they are willing to freeze production but only if other oil producers will do the same.

“The most difficult for that agreement would be Iran and Iraq,” says oil analyst Richard Mallinson of Energy Aspects Limited.

“Iran is one of the few OPEC countries not currently producing at its full capacity. As recently as January it received relief from western sanctions because of the nuclear deal, and so it is now hoping to increase its production and exports,” he says.

“But if it were to agree to a freeze in production, it would lose out. It would not able to increase its production, while Saudi Arabia, Russia, and other countries that are already at higher levels would maintain. So they wouldn't actually remove any oil from the market, it would only really be Iran that would be giving up.”

Iran may not agree, but is it open to negotiations?

“Iran will negotiate, because having oil prices this low is not good for anyone, except if you are a country that is importing oil,” says Foad Izadi of the University of Tehran.

“But Iran used to produce six million barrels of oil, and then in more recent years, before the major sanctions hit, it was producing two and a half, three million barrels per diem. At the moment it is one and a half million.

“So until Iran reaches this two and a half million barrels again, I don't think we are going to be able to cut much, because we are just trying to catch up,” he says.

Preparations for the meeting in Doha were kept secret, but started weeks ago. Both Russia and Saudi Arabia that are fighting a proxy war in Syria, agreed to accept the Qatari invitation.

Some analysts think there was more to the meeting than just oil. “The Saudi's and the Gulf states have been trying to get Russia on their side for years,” says political analyst Pavel Felgenhauer in Moscow.

“They were offering billions of dollars in investment in Russia, they have been offering to buy Russian weapons for large sums. They say, if you want to raise the oil price, you have to talk to us, and agree with us on other things.”

“But it comes at a price of Russia modifying its actions in Syria to begin with,” he thinks, and possibly taking more distance from Saudi’s arch foe Iran.

But in the end it is about oil and a deal to please everybody may be difficult to close.

”Unless they do agree, then this deal is unlikely to be implemented. It will fall apart and it won’t have any lasting impact on markets,” says Richard Mallinson of Energy Aspects.

“What it is doing, is adding to the volatility that we have seen in oil markets over the first weeks of this year,” he says.