The UAE Minister of Energy has backed an Opec-driven production freeze to help stabilise markets, sending the price of oil above US$35 per barrel yesterday.
“We believe that capping the levels of production by Opec members would have a positive effect in balancing future demand with the current oversupply,” said Suhail Al Mazrouei in a statement released by Wam news agency.
It comes after a deal was struck between Saudi Arabia, Qatar, Russia and Venezuela this week to hold production at January levels. Opec’s output last month was at 33.1 million barrels per day, while the non-Opec member Russia produced 10.9 million barrels per day – record highs for both countries.
Brent crude rose by 64 cents to $35.14 in early afternoon trading, up from $34.50 at the close on Wednesday.
The steep decline in the price of oil over the past 18 months to about $30 from $110 per barrel has forced governments to slash spending and rethink economic strategies.
In November, the UAE Energy Minister said that the “market would correct itself”.
While Tehran said that it would support an oil production ceiling despite its first post-sanction oil hitting the international markets this week, analysts are wary about the extent of Iran’s participation.
“Iran said that it would support a production cap, but it didn’t say that it would participate,” said Alexandre Andlauer, an oil and gas analyst at Alpha Value in Paris. He added that it was easy for Saudi Arabia and Russia to say that they would cap output because they had no more potential to increase.
“Saudi Arabia and Russia are at the highest oil-producing levels, so it’s easy for them to say that they can freeze, but it’s Iraq and Iran that have to say this.”
In Thursday’s statement, Mr Al Mazrouei pointed out that the current prices will force producers to fix production levels and to limit investments in more costly types of oil.
“Our current oil policy in the UAE is always open to cooperation with everyone as long as it serves the highest interest of producers and ensures market balance,” Mr Al Mazrouei said. “We are still optimistic about the future.”
Mr Andlauer said he regarded the latest strategy to freeze production as just another move in a game of chess.
“It’s a strategic play to say that ‘we’ll cap’ but, in the end, they can and will do nothing more.”
lgraves@thenational.ae
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