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Iran-Saudi rivalry strains Doha oil talks
April 17, 2016, 3:10 pm

Markets are hoping that the Doha summit to discuss the oil glut could yield a production freeze for OPEC members and Russia [Xinhua]

Markets are hoping that the Doha summit to discuss the oil glut could yield a production freeze for OPEC members and Russia [Xinhua]

A quorum of members of the Organization of Petroleum Exporting Countries (OPEC) and other oil producers such as Russia attempted to reach consensus on freezing output but had to play second fiddle to geopolitical rivalry between heavyweight exporters Iran and Saudi Arabia.

A communique calling for an output freeze until October that was reportedly drafted over the weekend was temporarily shelved when Saudi Arabia insisted Iran agree to the terms.

Iran had first indicated it would not attend the Doha Summit Sunday, but later decided it would send a mid-level representative to the talks. Over the weekend, it reversed course and insisted it would not attend.

Saudi Arabia, which had initially wanted to exclude Iran, on Sunday said no deal could be reached unless all OPEC members were in attendance, Reuters reported.

Sources said the summit meeting was delayed for a few hours.

In early April, Saudi Deputy Crown Prince Mohammed bin Salman said that the kingdom was willing to freeze oil output if all OPEC members including non-OPEC energy exporting countries agreed to do so.

He was indirectly referring to sanctions-free Iran, which at the time was poised to increase its daily output by 500,000 to one million barrels.

Since April 5, however, Iran – freed from sanctions because of its nuclear deal with the West – has already increased its output by 600,000 barrels to a daily production level of some 3.5 million barrels a day.

By comparison, according to the International Energy Agency, Saudi Arabia produced at least 10.2 million barrels a day in January.

OPEC member Venezuela pumped into global markets only 2.5 million barrels a day.

Non-OPEC Russia, meanwhile, injected into the markets nearly 11 million barrels a day.

With OPEC’s removal of output caps in January, the oil cartel is now selling 32.5 to 33.5 million barrels of oil a day – well above market demand.

Saudi Arabia has said it could push to pumping 12.5 million barrels a day and flood markets, bringing the price further down.

Energy markets have for weeks been hedging their bets ahead of the Doha summit, lowering expectations that a deal can be reached to freeze output at January levels.

If a deal is reached, even a watered down version of the draft communique, oil prices are like to be somewhat buoyed because it would signal that Saudi Arabia can make compromises, albeit reluctantly.

Whether that would be enough to convince global markets in the long run remains unclear.

If no deal is reached, oil prices are likely to fall but not as drastically as in February when US benchmark West Texas Intermediate (WTI) crude was a little over $26 a barrel.

Nevertheless, that’s not welcome news to Venezuela and other emerging markets which heavily rely on oil exports for their domestic spending and had not anticipated a 70 per cent drop in oil prices in a little less than two years.

Even oil-rich countries such as Kuwait, Oman and Bahrain to name a few are struggling to balance their budgets.

Russian economists say that they can turn the corner on recession in 2016 if oil prices remain above $40. However, if oil prices fall below $30 again, they warn that the ruble and the stock exchanges could become very vulnerable.

WTI closed at just over $40 a barrel on Friday.

The BRICS Post with inputs from Agencies

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