Doha still doesn’t add up to a row of beans

Venezuela’s oil minister Eulogio Del Pino and his Russian counterpart Alexander Novak both say 15 countries have now been lined up to meet later this month for talks about a production freeze. The notion of a verifiable freeze at January output levels was dreamt up in Doha last month by ministers from Venezuela, Russia, Saudi Arabia and Qatar.

Neither minister said who the 15 are, but we can assume they include those that have publicly declared in favour, in principle, plus those who have been invited to discussions with or subjected to visits from one of the Doha Four. A back-of-a-cigarette-packet tally produces a list of 13. Then there’s Iran and Iraq? There’s talk of a special deal for Iran, which would allow Iraq to come on board, but neither country has shown its cards.

A glance at the production profiles of the pro-freezers shows two things:

  • there is no sacrifice in freezing at January levels;
  • the impact on the global crude overhang will be negligible.

So, in no particular order:

  • Russia: January output was at a post-Soviet high of 10.87mn b/d. With Russian output on a downward trajectory to 2021, according to the IEA, maintaining this production level would be a triumph and would leave 2016 output higher than 2015.
  • Kazakhstan: Russia was tasked at Doha with having a word in the ear of the Astana government. January production was 1.68mn b/d. Full-year production forecasts have just been trimmed by 50,000 b/d so a freeze would be a boon.
  • Azerbaijan: Also seen as within the Moscow bailiwick. January production was 849,000 b/d and is in decline.
  • Oman: Production hit the long-time target of 1mn b/d in December. And Muscat had actually said late last year that it might sign up to a production cut deal. So, a freeze would not cause any grief.
  • Ecuador: Venezuela, Ecuador, Colombia and Mexico will meet in Quito ahead of a planned mid-March meeting of Opec and non-Opec countries to throw their support behind a co-ordinated production freeze, the Ecuadorean government said last week. Preliminary oil ministry data for January 2016 indicate production of 533,479 b/d, continuing long-term decline.
  • Colombia: Production is flat at around 1mn b/d and going nowhere soon.
  • Mexico: The government is battling against long-term decline so, again, a freeze for a few months would probably imply no great loss. But, given the great efforts to attract foreign investors, there’s something very counter-intuitive about a Mexican buy-in to Doha.
  • Venezuela: Judging Venezuelan production is an arcane practice. But with state-owned PdV in crisis and the country in economic and political turmoil, holding production at the Argus estimate of 2.3mn b/d for January would count as success.
  • Norway: Back in 2002, Oslo agreed to a token production cut alongside Opec and others. The ministry declines to confirm or deny whether it is in talks with the Doha Four. Norwegian oil production is forecast to fall this year.
  • Kuwait: Loyal to the Saudi lead, Kuwait has said it supports a freeze. But it would anyway struggle to increase output beyond the 3mn b/d that state-owned KOC said it produced in January, certainly without a resolution of the row that has shut in Neutral Zone production.
  • UAE: Like Kuwait, the UAE quickly backed the proposal. It claimed a very high 3.13mn b/d in January. Argus puts it at 2.9mn b/d. Either way, it’s high and a freeze would be comfortable.
  • Qatar: The country is primarily a gas producer not an oil producer. Crude output is reasonably steady and well under 700,000 b/d.
  • Saudi Arabia: The Opec kingpin does have spare capacity over and above the 10mn b/d or so that it has been producing since the November 2014 Opec meeting. Whether it admits it or not, it is competing for sales in Asia-Pacific (and, to a limited extent, in Europe) with Iraq, returning Iran and Russia. There is no indication that it aspires to increase its output any further at the moment — after all, it may gain more exportable oil as domestic product subsidies are trimmed. But if any producer in this list had to make a notional sacrifice of potential production by signing up to a freeze, it would be Saudi Arabia.

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