New hope for oil prices?

/By Azernews/

By Gulgiz Dadashova

As a reaction to reports that Russia and some OPEC members agreed to freeze oil output at January levels aiming to tackle a global supply glut, the prices for oil slightly jumped on the Wednesday morning.

Brent crude LCOc1 was up 28 cents at $32.46 a barrel by 0904 GMT, after settling down $1.21 in the previous session. U.S. crude CLc1 rose 16 cents to $29.20 a barrel.

The deal comes after a closed door meeting in Doha between Saudi Arabia, Venezuela, Qatar and Russia. Major producers announced that they would freeze, but not cut their output, in case other big producers join them.

"The reason we agreed to a potential freeze of production is simple: it is the beginning of a process which we will assess in the next few months and decide if we need other steps to stabilize and improve the market," Bloomberg cited Saudi Oil Minister Ali al-Naimi as saying.

Following the deal, all eyes turned to Iran, which signaled a tough stance. Tehran’s Oil Minister Bijan Zanganeh announced that Iran would continue increasing its crude output until it reached levels seen before the imposition of international sanctions.

The Islamic republic earlier announced readiness to use its entire fleet of tankers for global transportation of oil, and Goldman Sachs forecasted an increase in oil production in Iran in 2016 to 3.13 million barrels per day (compared to 2.85 million barrels in 2015), which seems to further pressure the market.

Meanwhile, OPEC members UAE and Kuwait said they were also ready to freeze output and oil sources in Iraq said Baghdad would abide by a global deal aimed at recovering the crude prices from their lowest level in over a decade. Later, the Venezuelan oil minister announced that ministers of Ecuador, Algeria, Nigeria and Oman supported the decision to freeze oil.

However, experts say moves to freeze output at January levels will make little difference to the overall supply-demand balance this year and not be enough to clear the glut in the market. They believe that the current agreement between Russia and Saudi Arabia are not enough for a stable growth of prices for physical oil supplies.

Major banks and market analysts are also skeptic over the deal. "The details of this agreement suggest that such a freeze will have little impact on the oil market as proposed, while there remains high uncertainty that it even materializes, Reuters reported citing GOLDMAN SACHS.

DEUTSCHE BANK, in turn, said not only has talks moved from cuts to a freeze, but such a freeze comes from producers who weren't expected to raise production materially in any case (Russia, Venezuela, Saudi Arabia and Qatar).

"A credible agreement to hold production flat by all OPEC members at the January level would be quite meaningful in tightening forward expectations of market balance as it would remove the threat of incremental Iranian volumes into 2017,” the Bank said, Reuters reported.

Other analysts voice more positive expectations, but note that tangible increase in oil prices cannot be recorded until the second half of the year, although much will still depend on how the countries will abide by quotas.

One of the key factors in this bid to prevent oil prices to see the mark of $20 a barrel is to follow the agreed steps. As from time to time exporters agreed to keep balance in production, but failed to observe the deal as soon as the prices increased.

The last global deal - OPEC and non-OPEC - dates back to 2001 when Saudi Arabia persuaded Mexico, Norway and Russia to contribute to production cuts, although Moscow never followed through and raised exports instead.

At least in short term, OPEC and non-OPEC members may see relief in their economies and more revenues, as the deal would ease pressure on their economies. This will also allow the oil economies to realize their crisis-management plans to revive their economies.