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07 December 2023

Oil deal update: UAE says open to cooperation

By Vicky Kapur

The UAE’s oil minister Suhail bin Mohammed Al Mazrouei has confirmed that the country is keen to cooperate with all players in the oil market in a bid to stabilise oil prices.

“UAE oil policy is open to cooperate with all producers toward mutual interest of the market stability and we are optimistic on the future,” Al Mazrouei tweeted this morning.

Al Mazrouei, however, made no reference to yesterday’s oil deal, in which Saudi Arabia, Russia, Venezuela and Qatar announced a production freeze at January levels.

However, any such deal between Saudi Arabia and major non-Opec producer Russia is contingent on other producers joining in.

Even as Iraq has given out feelers that it may be willing to a production freeze, investors are concerned that Iran, which was missing from the crucial meeting, may still go ahead and ramp up production, diluting any potential impact on prices in a supply-led glut in the market.

The price of oil, which spiked up by more than 5 per cent in early trade yesterday on the hopes of such a deal, slipped into negative territory 30 minutes into the announcement of the deal.

That’s because, for one, the players involved did not announce any production cuts – only a freeze at January levels, which were near record production highs. In addition, Iran, which has just re-entered the market following the lifting of economic sanctions on it, may not agree to such a deal.

US crude, or West Texas Intermediate (WTI) was down $0.15 or 0.52 per cent at $28.89 by 11.45am UAE time.

Brent crude for April delivery was down $0.09 (or about a quarter of 1 per cent) at $32.00 a barrel.

Oil has dropped over the past year due to booming US supplies and Opec’s decision, led by the group’s biggest producer Saudi Arabia, to ramp up exports and drive higher-cost producers out of the market.

Opec-member Iran has pledged to steeply increase output in the coming months as it looks to regain market share lost after years of international sanctions, which were lifted in January following a deal with world powers over its nuclear program.

“Our situation is totally different to those countries that have been producing at high levels for the past few years,” a senior source familiar with Iran's thinking told Reuters.

Iranian Oil Minister Bijan Zanganeh also indicated Tehran would not agree to freezing its output at January levels, saying the country would not give up its appropriate share of the global oil market.

Additionally, with productions at record levels in January, a freeze at these levels will not necessarily result in bridging the demand-supply gap. “Even if they do freeze production at January levels, you have still got global inventory builds which are going to weigh on prices. So whilst it’s a positive step, I don’t think it will have a huge impact on supply/demand balances, simply because we were oversupplied in January anyway,” said Energy Aspects’ analyst Dominic Haywood.