The world’s two largest oil producers struck a tentative deal to freeze their oil output at current levels in what may be the start of coordinated action to end the global crude glut.
The news is a ray of hope for a U.S. oil industry battered by low prices. A report out Tuesday by consulting firm Deloittes said that one-third of the world’s publicly-traded oil companies face a high risk of bankruptcy at current price levels.
After a meeting in Doha, Qatar, the oil ministers of Saudi Arabia and Russia said they had agreed to hold output at January levels, providing other major producers also agree to do likewise. Qatar, which hosted the meeting, and Venezuela, which needs a high oil price more than any other OPEC country, also said they would do likewise.
That puts the spotlight squarely on Iran, which has said it wants to raise its oil output by 500,000 barrels a day this year now that U.N. sanctions on it have been lifted. The Islamic Republic has indicated it might restrain its ambition if all other major producers did the same, but is keen to regain its place among the world’s most important energy exporters.
“Freezing now at the January level is adequate for the market, we believe,” Reuters reported Saudi oil minister Ali Naimi as telling journalists.
News of the meeting had initially sent U.S. oil futures back up as far as $31.20 a barrel, over 18% above the 13-year lows they plumbed last week on concerns about slower global growth. The international benchmark blend Brent also surged over 5% to $35.11/bbl. However, U.S. futures fell back to below $30/bbl after the meeting’s results fell short of market hopes, and were trading around $29.66/bbl at 0645 ET.
The head-to-head was the first significant political meeting since ministers from the Organization of Petroleum Exporting Countries failed to agree on an output ceiling in early December. That, along with increasing signs of a slowdown in the global economy, led to crude prices hitting a 13-year low last week.
There may be less to Russia’s conciliatory move than meets the eye. The Energy Ministry’s statistics department said earlier Tuesday that Russia produced a new record volume of crude last month of 46.005 million tons, an average 10.85 million barrels a day. That’s up 1.5% from a year ago and up 80,000 b/d from December alone. However, analysts and oil company executives have suggested in recent weeks that Russia’s oil companies would be unable to invest in maintaining production if prices stay as low as they are for much longer.
The Financial Times later quoted a Saudi source as saying that the desert kingdom may still agree to cutting production in future, in what would be a more dramatic initiative.