I would expect that till the storage tanks have no place left, the prices would remain southbound, and decline or hold, says Ashu Sagar, Secretary General, Association of Oil and Gas Operators (AOGO) of India
By Sai Nikesh D
Concerned over decline in oil prices driven by oversupplies globally, dominant oil producing Russia and Saudi Arabia on Tuesday announced potential freezing of their oil production till a stable position is achieved.
However, industry sources believe that production freeze will not have much impact on oil prices.
“The freeze is at an excess production level and I would expect that till the storage tanks have no place left, the prices would remain southbound, and decline or hold,” says Ashu Sagar, Secretary General, Association of Oil and Gas Operators (AOGO) of India.
“The race is between tank capacity and the companies holding on till they are forced to shut production,” he added.
Saudi Arabia’s Oil Minister had said the deal to fix production at January levels is the ‘beginning of a process’ that could require ‘other steps to stabilize and improve the market’.
“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,” Saudi Oil Minister Ali Al-Naimi had reportedly told media post talks with his Russian counterpart, in Doha on Tuesday.
Even though the deal got support from Qatar and Venezuela, Iran’s decision turned crucial and the OPEC members had reportedly expressed keenness to convince Tehran to draw its support in the deal.
However, according to latest reports on Wednesday, Iran has expressed a tough stand on the matter.
Iran’s Opec envoy was quoted to have termed it ‘illogical’ for Iran to join the oil output freeze agreed by the Russian and Saudi Arabia-led group and was also said to have expressed Iran’s interest in increasing oil production till it reaches the pre-sanction levels.
The deal announced on Tuesday, which is aimed at pushing up oil prices from a 12-year low, is seen as the first big oil deal and the first significant cooperation between major OPEC and non-OPEC countries in 15 years.
This article was published in The Dollar Business on February 17, 2016