Saudi Arabia makes conditional freeze offer

OREANDA-NEWS. September 28, 2016. Saudi Arabia is willing to freeze its oil output provided other Opec producers — with a small handful of exceptions — also agree to a freeze, energy minister Khalid al-Falih said today in a joint press conference with Russian oil minister Alexander Novak.

Al-Falih said no agreement was expected tomorrow as the scheduled meeting of Opec producers will remain purely consultative. The energy minister said a decision on an output freeze will more likely be taken during Opec's ordinary meeting on 30 November.

If Opec members decide to freeze output in November, Libya, Nigeria and Iran will be allowed to produce at "maximum reasonable levels that have been recently achieved," al-Falih said. Russia and seven non-Opec countries will be likely to take part in the freeze as well, Novak said.

Saudi Arabia has shown more flexibility than during the Doha meeting in April, when it made its agreement to a freeze conditional on the participation of all Opec producers, including Iran. Exempting Iran is likely to open the way for the consensus needed for an output freeze. Iran is still ramping up its production and exports after it was freed of all nuclear-related sanction in January.

But al-Falih said that apart from Libya, Nigeria and Iran, all Opec members will have to take part in the freeze, including Iraq.

Al-Falih reiterated the Saudi position that the market is in the process of rebalancing. "The market is healthy, the worst of the downturn is definitely behind us, supply and demand have converged and inventories are going down," he said.

The minister said there was no need for dramatic action to rebalance the market but a freeze will help speed up the process and give the market a gentle nudge in the right direction. "Saudi Arabia can withstand the current market trend," he said.

The terms for a freeze will have to be reached among Opec members in the coming weeks, while it is likely to take some time to agree upon a mechanism for implementation and monitoring. The base line for the output freeze could be an average of several months of production, or a particular month's output level. The base line will be determined according to production levels provided by secondary sources, al-Falih said.