Saudi Arabia said its accord with Russia to cap oil production was “the beginning of a process,” but the path from a freeze to the output cuts needed to eliminate a global surplus is far from clear.
When Saudi Oil Minister Ali al-Naimi suggested that the agreement in Doha was a prelude to “other steps,” he fanned hopes that the kingdom’s resistance to production cuts was finally weakening. Oil’s recovery from a 12-year low last month was fueled by speculation that major producers were finally building a coalition that could work to end the glut.
The problem with using a production freeze as the bedrock for deeper cooperation is that none of the parties involved have to make any effort to comply.
“The four producers involved are already producing close to their peak,” said Miswin Mahesh, an analyst at Barclays Plc in London. “The freeze is the oil-market equivalent of calling for a cease-fire when they’re running out of ammo.”
The accord reached Tuesday in the Qatari capital marks the first sign of the cooperation between OPEC and non-members that Saudi Arabia has said is necessary before it agrees to curb production. The failure of previous attempts at coordination, such as when Russia offered to curtail supply in 2008 only to keep pumping, makes analysts doubtful this latest union will go ahead. Divisions over the conflict in Syria — where Saudi and Russia back opposing sides — are also an obstacle.
Al-Naimi may clarify what to expect from the agreement when he gives a special address at the 6/agenda/” target=”_blank”>IHS CERAWeek conference in Houston on Feb. 23.
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