Saudi Arabia, Russia Agreed to Halt Oil Production After Qatar Talk, Boosting Oil Prices

By Staff Writer

Feb 17, 2016 05:34 AM EST

Saudi Arabia and Russia has agreed not to raise their crude oil productions in order to increase the falling oil prices during these recent years. This became the first coordinated movement by the two biggest oil producers in the world.

Bloomberg has stated that Iran is not included in the agreement. The deal is the first noteworthy collaboration between OPEC and non-OPEC producers in 15 years. Saudi Arabia has also mentioned that it waits for further acts.  The agreement has positively affected oil price, which indicates that traders do not see quick end to the worldwide supply excess.

The two countries together with Qatar and Venezuela have been willing to produce oil at January levels. Saudi Oil Minister Ali Al-Naimi called it as the "beginning of a process", which would need "other steps to stabilize and improve the market." Qatar and Venezuela will take part in this effort.  

Naimi said, "The reason we agreed to a potential freeze of production is simply the beginning of a process" over next few months. We don't want significant gyrations in prices. We don't want a reduction in supply. We want to meet demand. We want a stable oil price."

Before the deal, Saudi Arabia has opposed making any reductions in its oil with a reason that it could lead them to lose market share if its competitors did not do the same thing.

Oil prices LCOc1 bounced to $35.55 per barrel after the news, but dropped again $34 because of worries that Iran might decline the arrangement, as mentioned in Reuters. Iran is an OPEC member and a Saudi Arabia's competitor in its regional arch. Iran has declared its plan to increase oil production following the sanctions lifting last January, which enable the country to export its crude oil to Europe again.   

A senior source acquainted with Iran's thinking said, "We have not yet reached our level of pre-sanctions production. So when we get there, we will be on an equal level, then we can talk. Our situation is totally different to those countries that have been producing at high levels for the past few years."

Meanwhile, Capital Economics' analyst Jason Tuvey stated, "The agreement (if successful) should support oil prices but there are reasons to be cautious. Not all OPEC members have signed up to the deal - notably Iran and Iraq. History would also suggest that compliance may be an issue."

A pessimistic opinion from Daniel Ang, an analyst at Phillip Futures in Singapore, has also been shared by The Guardian. The analyst said that it was "another meeting that would yield nothing." He reminds the business sectors to stay careful about any unexpected deal from the major oil producers.  

An un-named market source has mentioned that the deal is not something to be optimistic about. It is likely to be about switching perceptions since the decision is made based on quotas at OPEC. 

However, Saudi Arabia and Russia's willingness to cooperate in solving the global oil excessive supply is a positive step to boost the oil industry. The two countries are the largest oil producers in the world. Any significant actions they make will bring impacts to the international oil industry. More coordinated steps are awaited to bring the initiative into effects.  

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