Will OPEC curb oil production?

Crude oil prices jumped this week after reports that Saudi Arabia and Russia had agreed a deal. “If it is so and it is not an exaggeration, “said Gazprom’s deputy chairman Alexander Medvedev, “Then I believe that it is very important for stabilisation for the oil market.”

(ED: Thanks to the Saudi oil minister undermining hopes when he told the al-Hayat newspaper ‘Forget about this topic’ on Wednesday, prices then fell – and rose – and fell again but we’re only on Thursday so watch this space..)

Iran has long been the final sticking point in the hoped-for deal. It has to date refused to consider any limits on its production following the successful conclusion of intense negotiations with the US and others over its nuclear capabilities, which resulted in the lifting of the international sanctions. However it is interesting that Oil Minister Bijan Namdar Zangane has said he’ll attend the summit (with a ‘If I can find the time’ caveat!).

What is also interesting is that Medvedev seems confident that Iran will do a complete 180 degree on its initial position.  He told ABC’s The Business, “Russia and Iran have a good potential to co-operate in oil and gas and I believe that Iran will take account of the situation in the world oil market because obviously you could get more money if there is less volume.”

It has taken precisely 21 months for that to filter through to the top brass at OPEC but better late than never.

However some aren’t so convinced and think it’s been a set up. Looking back at historical realities and pointing out that Russia hasn’t held to any production freeze (it reported its highest oil production in 30 years at the start of the month) and how Saudi Arabia has been deaf to calls from group members for months (and indeed said last week it wouldn’t move unless Iran joined up too), Simon Fentham-Fletcher CIO at Freedom Asset Management told CNBC, “I think the prospect of a tangible production freeze is minimal. I think the fact that they’re actually talking about one is a thing that the markets will jump on.” However he didn’t give up all, saying, “The fact that there’s absolute talk of one means that eventually one will come, and a production freeze will eventually happen.”

No-one is enjoying the pain of the oil price slide, particularly not Venezuela. One of those reports you’d rather not read if you live in Caracas or Maracay was published by RBC Capital Markets recently in which it warned that the South American country is one of five economies destined for disaster unless things change. The domestic pressure is mounting. President Nicolas Maduro has deflected by accusing the US of attempting to ‘scupper’ the deal by applying ‘war-like’ pressure to prevent any agreement between OPEC and non-OPEC nations. He told his countrymen and women in a televised address “You can’t imagine all the pressure that is coming from Washington to ensure the failure of the efforts we have made during the last year to create a common strategy to stabilise the market and prices.”

The one spark of hope is that Saudi Arabia kept output steady in March which Reuters takes as a sign that “Riyadh is serious about a plan to be discussed this weekend.” Has it learnt from its decision in December 2014 to hold production steady (though not prices)? Only time will tell. 96 hours to be precise.