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01 December 2023

Iran welcomes drive for oil output freeze; Oil rises over 5%

By Reuters

Oil prices rose by more than 5 per cent to climb above $34 a barrel on Wednesday after Iran voiced its support for an initiative led by Russia and Saudi Arabia to freeze production to boost prices.

Iranian Oil Minister Bijan Zanganeh met counterparts from Venezuela, Iraq and Qatar in Tehran for over two hours, after which he welcomed the initiative to set a "ceiling" as a first step towards stabilising the market.

Zanganeh, quoted by the Shana news agency, did not explicitly say that Iran would keep its own output at January's levels.

An Iranian official earlier said that the country would continue increasing crude output until it reached levels achieved before the imposition of international sanctions.

"Asking Iran to freeze its oil production level is illogical," Iran's Opec envoy Mehdi Asali was quoted as saying by the Shargh newspaper.

A freeze in production from January's near-record levels would do little to relieve the glut, analysts said.

"The market needs a cut, not a production freeze," PVM analyst David Hufton said.

Brent crude was up $1.92 at $34.08 a barrel by 1556  GMT. U.S. crude rose $1.50 to $30.54.

Under a proposal that could lead to the first global oil production deal in 15 years, major producers including Russia and Saudi Arabia would freeze output at January levels, though Riyadh said on Tuesday that the deal depended on the cooperation of other big producers.

Iran, the Organization of the Petroleum Exporting Countries' fourth-largest producer, might be offered an exception as it seeks to ramp up production after last month's removal of sanctions over its nuclear programme, said Ildar Davletshin, analyst at Renaissance Capital.

Moves to freeze output at January levels will make little difference to the overall supply-demand balance this year and not be enough to clear the 600,000 barrels per day surplus projected for the year, analysts at FGE said in a note.

"It could pave the way for further action to be taken should the likes of Saudi Arabia, other Opec members and Russia deem it necessary," FGE said.

Still, a deal would signal a change in Saudi Arabia's stance.

"The deal doesn't add much to rebalance the market, but it is still important that the parties talk. The Saudis are no longer saying they are fighting for market share but that they are ready to discuss a deal," Davletshin said.

Investors are also eyeing U.S. oil inventory data later on Wednesday and on Thursday for further direction on prices, with a poll of analysts forecasting a gain of 3.9 million barrels in crude oil stocks last week.