An oil production freeze appeared unlikely this week as Iran maintained its stance. It was hoped that OPEC and non-OPEC countries would agree a freeze on output during an unofficial meeting in Algeria this week. Iran’s crude production has stagnated at 3.6 million barrels daily for the past three months since sanctions were eased in January. This is close to the pre-2012 sanctions level.
Iran is insisting it will not reduce output until it has increased crude output to over 4 million barrels a day. It still appeared to be insisting on this Monday. An agreed worldwide freeze in production therefore appears unlikely. Crude prices were up 3.5% Monday, but this just made up for the drop Friday. The meeting’s objective now appears to be to persuade Iran to freeze its output to an acceptable level.
The need for a reduction or at least a freeze in crude output is obvious. Oil prices have dropped by more than half since 2014 due to overproduction. This prompted OPEC and Russia to look for a way of rebalancing the market and get prices back up again. Without adequate oil exports, many countries financial budgets have been suffering.
Although a freeze on production would help, many believe it would not lead to a price increase. At today’s level of output it would still be too much. It would seem highly likely for any country to reduce its crude output is Iran is insisting on increasing its production by almost 14% first.
It has been said that if Iran froze production, Saudi Arabia would reduce its output. This is a definite change in position since Riyadh has always refused to cut production. Iran’s stance would negate this offer. It appears increasingly likely that there will be no oil production freeze until the OPEC meeting in November.
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