It's the day after oil ministers from Saudi Arabia, Russia, Venezuela and Qatar agreed to freeze production and assuming they could get other countries to agree, it is now on to Iran to try and seal the deal. Sanctions challenged Iran says a production freeze for them is unfair because unlike the rest of the players that have increased output by over 4 million barrels a day, Iran has been locked in sanctions ice and they want to make up for lost production time. They have already been frozen and now they want a thaw.
Market Watch reports that, "Qatar’s energy minister and current OPEC President Mohammed al-Sada is heading to Tehran Wednesday to discuss a plan to cap crude production with ministers from Iran, Venezuela and Iraq, people familiar with the matter said.” There is talk that Iran may be offered special terms to allow them a chance to make up for lost time. In fact, according to “Oil Price”, Iran is loading two million barrels of oil on a tanker in the Gulf in preparation for its first oil exports today to Europe since the lifting of sanctions last month. According to official Iranian media today, the tanker is at Kharg Island in the Gulf and the exports will go to French oil giant Total SA (PA:TOTF). But this is only one of three tankers preparing to export Iranian oil to Europe. A second and third tanker are loading one million barrels each and are headed for Spain’s refiner CEPSA and Russian Lukoil's (L:LKOH) trading arm, Litasco.
So the Iranians are just getting back to normal and most likely will have to be offered a special deal to look like they will go along. It looks like that deal may be offered.
The key for this deal is to convince Iraq whose production has been rising to cool it. For Iraq, locking in January levels is not a bad deal. Dow Jones reported that Iraq produced 4.775 million barrels a day of oil in January, according to official figures, so any offer of a production freeze based on last month's output will, in all likelihood, be accepted by Baghdad. Iraq's oil sector is keeping its output on full throttle and 2015 saw the Gulf state take significant market share increases in several markets, including China. There have been some worries that low oil prices will lead to a lack of investment in Iraq's southern fields, but on January's evidence, there seems to be no production issues with any of them.
Of course critics of the deal say that even if OPEC and non-OPEC agrees to a production freeze, it won’t matter. Russian production averaged a record high of 10.88 million barrels per day, while Saudi Arabia averaged 10.23 million barrels in the same month which accounts for 21% of global production according to Reuters, which they say will keep the market over supplied. They say they are forgetting about shale producers.
Well a deal, any deal, would be the first deal in 15 years. The longest journey begins with the first step. If they can agree to a freeze, the door is open to take it the next level if need be.
As far as shale producers go, this industry has been crushed by lower prices. It is unlikely that shale will rebound quickly as capital and bad loans will make it hard to turn the tide from declining production to increasing production.
Of course the low price story is still making headlines on the product front. The Energy Information Administration reported that the U.S. average retail price for both regular-grade gasoline and diesel fuel dipped below $2.00 a gallon on Monday for the first time since February, 2005. The price for gasoline fell 3.5 cents from the prior week to $1.72 a gallon, based on EIA's weekly survey of motor fuel costs nationwide. Diesel fuel declined 2.8 cents to $1.98. The pump price for gasoline is down 55 cents a gallon from a year ago, and diesel is down 89 cents.