A production cap is far from certain but you wouldn’t know from the way oil prices are surging. U.S. benchmark crude jumped 5.6% Wednesday and moved back above $30 a barrel on hopes that a proposal on freezing oil production levels by major oil producers would actually happen. West Texas Intermediate crude surged 5.8% to $30.73, the latest part of a monster move that started last week on rumors OPEC was finally to do something about the unrelenting slide in the price of crude. In four trading sessions since hitting a nearly 13-year low, oil has now gained 15.5%.
OPEC nations Saudi Arabia, Qatar and Venezuela as well as Russia have agreed to cap crude production at January levels if other major producers follow suit. But Iran initially said it won’t stop increasing its exports. If such an agreement actually happened, it would mark the first deal on production between OPEC and non-OPEC members in 15 years, according to Goldman Sachs.
Still, expectations that Iran will continue to increase production and January’s high production rates ensure that oil prices will remain under significant pressure.
Goldman Sachs analyst Damien Courvalin said late Tuesday in a research note that “such a freeze will have little impact on the oil market” and that there’s “high uncertainty that it even materializes.”
Any skepticism about the deal, however, was barely noticeable in Wednesday’s rebound for crude oil as investors glommed onto indications of coordination between major oil producers to address the global glut of crude oil.
Earlier, the Islamic Republic’s OPEC envoy Mehdi Asali said: “Asking Iran to freeze its oil production level is illogical,” according to Iranian newspaper the Shargh.
He added: “When Iran was under sanctions, some countries raised their output and they caused the drop in oil prices. How can they expect Iran to cooperate now and pay the price?”
Energy ministers from Venezuela, Iraq and Qatar were meeting with their Iranian counterpart Bijan Zanganeh in Tehran on Wednesday in an effort to reach an agreement to restrain oil output and prop up falling prices, Reuters reported.
Iran has said it will increase its oil production by 500,000 barrels a day after international sanctions were lifted in January under a deal with world powers to curb its nuclear program.