The world’s largest producers of oil Russia and Saudi Arabia have agreed to take the measure of freezing oil output at January level which will assist in preventing further decline in its oil prices.
Both countries calculated a heavy loss this past January which equals a twelve-year all time low. The loss follows OPEC’s policy of unrestricted pumping, which has sent prices plummeting to below US$30 a barrel since June 2014 highs of $110.
At the closed door meeting which was held in Doha, ministers from Venezuela and Qatar were in attendance; also Saudi-Arabian Minister of Oil, Ali Al Naimi finally agreed to end the OPEC policy of unrestricted pumping.
January’s output for the Organisation of Petroleum Exporting Countries was at 33.1 million barrels a day, and is recorded as its highest ever; this implies that any impact the freeze will have on the oil price is likely to be very minimal.
Discussing on the new freeze policy, Mr Al Naimi said,
“Freezing now at the January level is adequate for the market, we believe. We recognize today the supply is going down because of current prices. We also recognize that demand is on the rise.”
“It is the beginning of a process which we will assess in the next few months and decide if we need other steps to stabilise and improve the market,”
Russia also recorded its highest level in history in January, producing ten-point-nine-million barrels a day. Russia is not a part of OPEC.
The oil-output freeze move is said to represent a deviation from the original policy earlier adopted at the OPEC’s December meeting where the group agreed to totally remove production caps.
The ministers also said for the oil freeze policy to pull through other oil producers including Iran will have to come aboard.
Iran’s oil minister, Bijan Namdar Zaganeh, has continuously told newsmen:
‘Iran does not intend to cut oil productions, as the country seeks to use revenue from sales to lift its economy out of recession. ‘
Iran, which was earlier sanctioned was also let loose this January allowing the country to drastically increase its oil production.
In a bid to control the low oil price which had caused economic and financial pain across the Gulf, government leaders including UAE and Saudi Arabi reduced public spending to aid in preserving financial reserves of their countries.
An emerging market economist, Jason Tuvey feels the oil-freeze agreement is “unlikely to significantly alter the economic outlook for the Gulf Cooperation Council”
Even if all Opec members, including Iran, agree to comply with the target, high production will still keep oil prices low, depressing the economic outlook for Gulf states.
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