NEW DELHI (Reuters) - A senior U.S. energy official said he doubted the success of a proposal by OPEC and non-OPEC producers to freeze crude oil output in an oversupplied market and boost prices.
Oil prices have crashed 70 percent in the past 20 months, driven by near-record production by the Organization of the Petroleum Exporting Countries (OPEC) and other producers, mainly Russia.
In an attempt to stabilize prices, Russia, Saudi Arabia, Qatar and Venezuela have agreed a deal to freeze production at January levels if other producers do the same.
“I am highly skeptical of this deal,” said Amos J. Hochstein, the U.S. State Department’s special envoy for international energy affairs. “Locking in countries’ production near historic production highs does not change an oversupplied market.”
Russia and OPEC were both pumping oil at near-record volumes last month, with Russia reaching another post-Soviet high of 10.88 million barrels per day (bpd).
Russia believes the oversupply of around 1.8 million bpd could be halved if the deal to freeze oil production at January levels takes effect.
Yet traders were more skeptical, pointing out that this would still leave output at almost 1 million barrels every day in excess of demand, and that Iran was showing no interest in reining in its production following its return to world markets in January after years of sanction-induced isolation.
Following a short rally after the announced deal last Thursday, crude prices slumped almost 4 percent on Friday with U.S. contracts falling back below $30 per barrel.
“Also, I am highly skeptical of Iran, now off of sanctions, committing to exports at sanction era lows,” Hochstein told Reuters in an interview late last week.
Iran, previously OPEC’s No. 2 exporter, wants to quickly raise its oil output to regain lost market share. Tehran welcomed the proposed deal but stopped short of saying it would freeze production at January levels.
Russian Deputy Energy Minister Anatoly Yanovsky has said that all agreements between world oil powers on freezing crude production are voluntary and that he couldn’t imagine a mechanism for controlling the production freeze.
Crisis-hit Venezuela, which mainly relies on oil revenue and is facing recession, is sending new proposals to leaders of OPEC and non-OPEC countries to stabilize the oil market, President Nicolas Maduro has said.
Reporting by Nidhi Verma; Editing by Richard Pullin