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Russia, Saudi Arabia agree oil production freeze as Iran says will boost output

The swing producer now is US shale and its response to a rising or falling oil price should keep the price in a narrow range, Weafer says

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Iran plans to increase its own oil output to pre-sanctions levels in the next few months. National Iranian Oil Company (NIOC) Director for International Affairs Seyed Mohsen Ghamsari told CNBC on September 7 that Iran’s oil output had reached 3.8 million barrels per day and that it would increase production.

London-based energy expert Manouchehr Takin told New Europe on September 7 that Iran’s statement is nothing new. Iran, like other major oil producers, has said it will increase its oil output inline with its customers’ needs, Takin said.

“Iran has said that it wants to increase its production capacity and its actual production to the level before the sanctions were imposed by United States and the UN and the Europeans, which made Iran not to produce and not to sell. Iran wants to go back to increase production, find their old customers and get their market back,” Takin said.

However, he noted that the Iranian oil minister has also said Tehran is ready to help stabilise the oil market, which is a positive sign.

Turning to the recent deal between Russia and Saudi Arabia to stabilise oil markets, Takin noted that oil prices rose on September 5 on speculation about what the Saudi-Russia oil agreement would say. “The agreement between Russian and Saudi oil ministers before it was announced, it made the price go up. When the actual announcements were made of the agreement between the two countries’ oil ministers the details showed that this is not agreement to freeze or reduce production,” Takin said, adding that “the market realised that so the prices, which had gone up when they announced, came down a bit”.

Algeria is hosting meetings of the International Energy Forum and the Organization of Petroleum Exporting Countries (OPEC) on September 26-28.

At the G-20 summit in China, Russian Energy Minister Alexander Novak and his Saudi counterpart Khalid al-Falih agreed to form a working group to monitor the market and to have regular meetings. “The fact that now Russia has agreed to cooperate is a positive sign but it’s a cautious optimism,” Takin said.

Chris Weafer, a senior partner at economic and political analysis firm Macro-Advisory, wrote in an e-mailed note to investors on September 8 that the issue of possible cooperation between Russia and Saudi Arabia and Iran to cap oil production has emerged again. “In reality, the swing producer now is US shale and its response to a rising or falling oil price should keep the price in a narrow range,” he wrote.

Weafer noted that Brent crude rose 10.8% in August, but the ruble stayed flat, recording a third straight month of low correlation.

Takin told New Europe that he believes that the crude oil price would gradually improve. “But I don’t think it will reach 60 dollars until the end of this year. It will probably be still in the late 40s and lower 50s,” Takin quipped.

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Co-founder / Director of Energy & Climate Policy and Security at NE Global Media

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