Saudis Open to Oil-Production Freeze Without Iran

Saudi Arabia, Kuwait and their allies would limit their oil output even if Iran doesn’t follow suit, OPEC officials said, a change in tone that paves the way for curbs on crude production to be set next month.

The evolving position emerged after Qatar said that it would host a meeting on April 17 in Doha for oil producers both inside and outside the Organization of the Petroleum Exporting Countries, the cartel that controls a third of the world’s crude production.

The meeting would be a follow-up to a Feb. 16 pact among Saudi Arabia, Russia, Qatar and Venezuela to freeze their output at January levels in a bid to bring oil supply back in line with demand and raise prices that hit 12-year lows this year. On any given day, global oil supply of about 96 million barrels outstrips demand by almost two million barrels.

Oil prices rose on Wednesday’s announcement. Brent crude, the international benchmark, was up 78 cents a barrel, or 2%, at $40.17 in London trading Wednesday afternoon.

Saudi Arabia and its allies in the Middle East had said any agreement would be off if Iran refused to participate, but oil prices as low as $27 a barrel this year have hurt the Saudi economy and put domestic political pressure on the kingdom to move forward anyway, OPEC officials said.

Iran’s refusal is “not a deal beaker,” said an OPEC official from a Persian Gulf Arab country.

An agreement would have limited impact if it didn’t include Iran, the world’s seventh-largest oil producer trying to ramp up its output now that international sanctions have ended. Iran’s oil minister, Bijan Zanganeh, has said his country won’t consider joining until its production reaches four million barrels a day, up from about 3.2 million barrels a day currently.

Mr. Zanganeh had initially expressed support for the freeze without committing to it. But after Saudi oil minister Ali al-Naimi appeared to insist at a Houston conference last month that Iran join the cap, Mr. Zanganeh publicly attacked the deal as “a joke” and said other producers should “leave us alone.”

The Qatari oil ministry said 15 OPEC and non-OPEC producers supported a production freeze, accounting for 73% of global oil output. The Qataris didn’t say which members would attend the meeting in April, and officials in several countries involved said they hadn’t been notified formally of the gathering.

Analysts have said the Feb. 16 pact is largely symbolic. Data from the International Energy Agency show production from the 15 countries discussing a cap would decline even without a freeze. The combined output of the group will drop by 200,000 barrels a day in 2016 because of investment cuts and lackluster demand, according to data from the agency, which monitors global energy trends.

Saudi Arabia and its allies still want Iran to put the brakes on its output, but no longer want its opposition to stand in the way of a deal seen as helping the kingdom during dark economic times. Saudi Arabia ran a record budget deficit last year and drew down its foreign reserves to around $602 billion at the end of January. Riyadh has reduced popular energy subsidies and is now seeking $8 billion in loans from international banks.

Saudi Arabia and Iran represent different strains of Islam, Sunni and Shiite, respectively, and have been at odds over a host of issues, backing different sides in Syria’s civil war. Riyadh cut off diplomatic ties with Iran this year after its embassy was attacked by protesters in Tehran following the execution of a prominent Shiite cleric.

A Kuwaiti oil official said Iran’s oil return “has been smaller and slower” than expected. According to OPEC’s figures, Iran’s crude production has risen by 245,000 barrels a day in the past two months-half the increase the country pledged immediately after sanctions were lifted.

“It would be good if they joined, but if not, it’s not a big deal,” the Kuwaiti official said.

The positioning comes after oil prices have rallied more than 20% since the Feb. 16 production-freeze pact was announced, also in Doha. In a news release Wednesday, the Qatari oil ministry called that agreement the “Doha initiative” and credited it with changing sentiment in the oil market.

The pact “put a floor under the oil price,” said the Qatari oil ministry. “This has triggered a broad and intensive dialogue between all oil producers out of the conviction that current oil prices aren’t sustainable.” Qatar holds the rotating presidency of OPEC this year and has been coordinating the effort.

Source: Wall Street Journal