One million barrels of oil per day is the magic amount of oil output that must be reduced globally to rebalance the energy markets and jumpstart a rise in oil prices, according to Algerian Energy Minister Noureddine Bouterfa.
“The question is at what level we would freeze or reduce output—we need to find the good compromise in order not to destabilize the market,” Bouterfa said on Tuesday. “It’s necessary at least to reduce by 1 million barrels of oil per day to re-balance the market. Will we get there? We are working for that.”
Bouterfa’s remarks come a little over a week before members of the Organization of Petroleum Exporting Countries hold a meeting in Algiers. And so far, it looks like the Algerian minister’s wish may come true.
OPEC supplies 40 percent of the world’s oil. The 13-member bloc’s secretary-general confirmed yesterday that the organization had been in talks with non-OPEC oil producers to institute a binding freeze on oil production for one year to undo the effects of the supply glut.
Russian President Vladimir Putin —who heads the country that produced 12.4 percent of the world’s oil output last year - vocalized his support for an output halt in an interview with Bloomberg earlier this month.
“We believe that [a production freeze] is the right decision for world energy,” Putin said, later confirming that he believes it would be fair for Iran to receive some exceptions to the deal as it rebuilds capacity.
In April, Saudi Arabia backed out of a negotiated output reduction deal after Iran refused to participate just four months after the removal of international sanctions allowed the country to re-enter global energy markets.
Ironically, anticipation of a production freeze has led Iraq and Saudi Arabia to ramp up outputs to ensure their upper production limits under any quota-based deal would be as high as possible. An organized effort to counter the oil glut has caused an unintended boost in supply.
Leading up to the Algiers meeting, Iranian oil officials and executives have made lukewarm statements regarding their willingness to abide by a production halt.
"Iran will cooperate with OPEC to help the oil market recover, but expects others to respect its rights to regain its lost share of the market," Bijan Namdar Zanganeh was quoted as saying by the oil ministry's news agency SHANA at the end of August.
Pre-sanctions levels would mean Iran would have to reach an output of four million barrels a day before the meeting in Algiers. Currently, the nation has managed to reach 3.8 million barrels a day, data obtained by Bloomberg shows.
But Iran likely will not be able to meet this goal by next week, according to Mohsen Ghamsari, the National Iranian Oil Co.’s director for international affairs.
“As soon as we come back to pre-sanction levels, we will be ready to discuss quotas and level of production,” Ghamsari said in an interview in Singapore two weeks ago. “Four million barrels a day production level is not very far from our hands. I hope by end-2016 or early next year, we would be able to reach that level.”
If Iran insists on non-participation this time around, Saudi Arabia could tank yet another attempt at resetting the energy supply landscape.
It looks like there is still hope, though: three anonymous sources told Bloomberg earlier today that representatives from Iran, Saudi Arabia and Qatar met at OPEC headquarters in Vienna this week to prepare for the Algiers meeting.
Despite this seemingly deal-affirmative news, twenty-three industry analysts surveyed by Bloomberg all predicted that no new agreement would emerge during next week’s summit. Nonetheless, if the oil ministers do reach a consensus during the meeting, they could call for an extraordinary meeting regarding the output freeze.
At this point, anything could happen.
By Zainab Calcuttawala for Oilprice.com
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