Oil deal with Russia: No slam dunk

January 29, 2016 09:47 AM

Crude oil prices are trading either side of unchanged so far this morning after the Russian Oil Minister lowered expectations of any OPEC/non-OPEC deal or even a scheduled meeting. He also said that a decision on cutting oil production is only possible if all crude exporting nations are in agreement according to a report in Bloomberg. He went to say there is no set data for any meeting but he indicated that OPEC is discussing it with other possible participants.

Reuters is reporting that OPEC is consulting with several non-OPEC countries with no date set for a meeting. Possibly a February or early March date and if a meeting is held it would likely be at the expert level rather than the ministerial level.

The above all suggests that there is no slam dunk as to any pre-agreement nor a definitive meeting date or agenda at this point in time. As has been the case several times since the oil price downtrend began in June of 2014 all that has occurred were discussions on the concept of cutting production. This round of news snippets hitting the media airwaves is slightly more interesting than in the past in that Russia may be easing its earlier view of not cutting production.

Each time the discussions start to occur all sides start to place various qualifications on what will need to be agreed upon for a deal to get done. For example the Russian Energy Minister said that all exporting countries have to be in agreement. What does that mean? All non-OPEC countries around the world… U.S., Canada, etc. That would never happen.

Another potentially significant obstacle to any deal would be Iran’s positon. Iran is just starting to push additional oil back into the market now that sanctions have been released. A big question will be will Iran be willing to delay its all-out move back into the global oil market after having its exports restrained (due to sanctions) for over five years? Or will Iran want to be treated as a temporary outlier from any OPEC decision much as Iraq was during and after the months of the Iraqi war? Also with the proxy war going on between Iran and Saudi Arabia will Saudi Arabia be willing to give Iran a pass on cutting production to provide higher prices for Iran?

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