Home' Trinidad and Tobago Guardian : March 3rd 2016 Contents BG8 ENERGY
BUSINESS GUARDIAN www.guardian.co.tt MARCH 3 • 2016
Russia says it is close to an international
deal with OPEC countries to cap oil pro-
duction, and that a final decision will be
made at a meeting this month.
Saudi Arabia, Russia, Venezuela and
Qatar floated an output cap last month
with the aim of boosting oil prices, but it
was conditional on other producers joining
in. Iran has so far resisted, while Russia
Addressing top state and private sector
oil executives, Russian President Vladimir
Putin said Energy Minister Alexander
Novak "is agreeing and practically has
agreed with his partners in the global mar-
ket" to cap oil output.
"It s about us not ramping up oil pro-
duction this year," he said Tuesday in com-
ments published on the Kremlin Web site.
The deal would cap Russian production
at the level of January 2016, Putin said.
Novak was quoted by the Tass news
agency as saying that the deal mentioned
by Putin was agreed to by 15 countries
which together accounted for 73 per cent
of global production. He did not list the
countries involved. Iran has so far not
agreed because it wants to increase output
after years of sanctions on its oil sector.
"It s a critical mass of those countries
who could reach a deal," he said. "Even
without Iran, a deal will be effective."
Novak struck a more conciliatory tone,
saying that there could be an exemption
allowing Iran to increase production from
artificially low levels under sanctions. "In
my view, it could be approached individ-
ually, with a separate decision," he said.
Novak added that a meeting of OPEC
and non-OPEC producers like Russia this
month will produce "a final decision."
OPEC is very unlikely to cut
output at its next meeting in
June, even if prices remain
extremely low, according to
OPEC sources and delegates,
as it will be too early to say
how fast Iranian output is rising.
The sources, which include officials from the
Middle East, say OPEC countries such as Saudi
Arabia also want to test Russia s commitment
to freezing output before taking any further
steps to stablise prices.
More than 18 months after oil prices began
a steep slide due to excess supply, Saudi Arabia,
Qatar, Venezuela and non-OPEC Russia agreed
last month to freeze output at January levels
in the first global oil pact in 15 years.
Saudi Arabian Oil Minister Ali al-Naimi said
last week a supply cut was not on the cards
although adding that the production freeze was
only the first step to balance the market after
prices fell to their lowest since 2003.
"Maybe by the end of the year (a cut could
be possible) when it is really clear that Iran is
actually producing the volumes they are talking
about. But not in June," a source from one of
OPEC s Middle Eastern producers said.
January was peak or near-peak production
for Russia and Saudi Arabia, the world s two
top oil exporters, but Iran---OPEC s No 3 pro-
ducer---is the key supply uncertainty for 2016
as it is raising output after the lifting of Western
sanctions in January, adding barrels to the
already saturated market.
Over the past month, Iran has issued con-
flicting statements saying it could add up to
1.5 million barrels per day over the next year
which would confound market scepticism that
its fields were damaged by years of sanctions.
Meanwhile, its February exports have dis-
appointed as European buyers were cautious
to immediately boost trade amid remaining
dollar clearance and ship insurance problems.
"No-one at OPEC knows what s going on
with Iranian fields. So the Saudis want to see
what happens in reality," a source in one of the
OPEC delegations who is familiar with pro-
duction freeze negotiations, said.
No special terms
Non-OPEC Oman and some OPEC sources
have floated an idea of Iran being exempt from
output freezes---as was Iraq in the past when
the country was subject of international sanc-
tions---but so far Tehran has not been offered
any special terms, according to OPEC sources.
Iranian Oil Minister Bijan Zanganeh said last
week the production freeze was "laughable"
while Iranian sources say the country would
be prepared to discuss a production pact once
its output reached the pre-sanctions level.
Analysts believe output and exports could
rise by a maximum of 0.7 million bpd to around
3.5 million bpd in the next months but it will
take time to understand where real figures stand.
Iran, for instance, has already told OPEC it
was pumping as much as 3.4 million bpd in
January; a much higher number than estimated
by OPEC watchers.
By June, when OPEC holds it next meeting,
the picture of Iranian exports will still not be
clear, several OPEC sources said, adding that
they might only have reliable numbers for April.
The sources also said it will be too early to say
in June if the world s record oil stocks have
finally become to shrink.
Saudi Arabia and Russia have not said the
output freeze would be void if Iran refuses to
join in, leaving room for a potential compro-
Russia s Energy Minister Alexander Novak
plans to travel to Iran, Moscow s close ally, in
March for more talks on the production freeze,
which he said could last for as long as a year.
If Russia respects the output freeze, it would
be a major departure from its former policies.
The only time Russia agreed to cooperate with
OPEC was in 2001 but it never delivered on its
pledge and raised exports instead.
That was a big disappointment for Naimi,
who orchestrated the 2001 deal, and is still
wary of agreeing anything at risk of being cheat-
ed by Russia or fellow OPEC members.
"Even if they say that they will cut production
they will not do it. There is no sense in wasting
our time seeking production cuts," he said last
But in the opinion of OPEC watchers the
output freeze deal signals a change of tone for
Saudi Arabia, from a view that the market
would rebalance itself to one where it might
need a push.
"Eventually, we will have a cut in production,"
one OPEC delegate said, declining to be iden-
Others are urging swifter action. Qatar s for-
mer energy minister Abdullah al-Attiyah, who
is still talking to producers inside and outside
OPEC, said a cut was needed before the glut
Contract awards for Mexico s first-ever deep
water oil auction covering ten potentially lucrative
blocks will take place on December 5, oil regulator
CNH said on Friday, a tender that will test investor
interest amid a worldwide price slump.
The ten blocks are located in the country s
territorial waters in the Gulf of Mexico.
The auction date was approved by a unanimous
vote of CNH commissioners.
Four of the blocks straddle the maritime border
with the United States in the Perdido Fold Belt
where oil majors on the US side, including Royal
Dutch Shell and BP, have drilled dozens of com-
mercially successful wells.
The remainder are located in the Salina basin
along the southern rim of the Gulf.
Mexico s energy ministry will award license
contracts, similar to concessions, in the historic
The government will limit the auction to the
deep water blocks after initially announcing that
heavy oil fields and several joint ventures with
national oil company Pemex would also be
Winning bidders will not be required to drill
wells during the first four years of the contracts,
an element designed to lure cash-strapped pro-
ducers facing crude prices near 12-year lows.
The auction is the fourth phase of the so-
called Round One tender, a major part of an
energy reform launched in 2013 that ended the
decades-long monopoly enjoyed by Pemex and
aims to reverse eleven consecutive years of declin-
ing crude output.
The previous three auctions, including shallow
water and onshore mature fields, awarded 30 of
the 44 contracts that were offered.
In this November 22, 2013 file photo, oil worker Vicente Gonzalez looks up as the drill is pulled
upwards on the Centenario deep-water drilling platform off the coast of Veracruz, Mexico in the
Gulf of Mexico. Mexico's state-run oil company said Monday, February 29, 2016, that it is halting
some of its exploration and production projects in an attempt to counter the effects of the drop
in international oil prices. AP
OPEC watching Iran, Russia
...unlikely to cut output in June
Russia says global deal
to cap oil output is close
deep water Gulf oil
auction set for Dec 5
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