A deal reached in Qatar Tuesday morning to freeze oil production at January levels won’t be enough to boost oil prices, according to an industry expert at the University of Calgary.
Russia, Saudi Arabia, Qatar and Venezuela announced the deal after an unexpected, closed-door meeting involving the four countries in the Qatari capital, Doha.
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Russian Energy Minister Alexander Novak said the countries are willing to freeze output at January levels “if other oil producers join the initiative.”
While it’s rare for OPEC nations and a non-OPEC country to reach agreements on output, the deal’s not likely to have much of an impact, the University of Calgary’s Bob Schulz said.
“I don’t think an agreement is going to last because people aren’t going to believe the ink on the page,” Schulz, professor in Strategy and Global Management and Business and Environment, said.
“In order to have some impact, it has to have some credibility. Right now, who has credibility? In my opinion, almost no one.”
Schulz says even if the deal held, it would take three to six months for global demand to catch up to a record global glut and start to put pressure on prices.
“Even if output is frozen, this will still be at extremely high levels,” Jason Tuvey, Middle East economist at Capital Economics told the Associated Press. “Saudi oil production remains close to record highs” of more than 10 million barrels a day.
Another wildcard is Iran, which was not at Tuesday’s meeting. Iran has been virtually shut out of the global oil market due to years of sanctions over its nuclear program. But since sanctions were lifted, Iran has said it aims to increase production to 500,000 barrels of oil a day.
READ MORE: Iran exports first oil shipment to Europe since nuclear deal
Iraq, as well, has been committed to maintaining high levels of production.
“The key OPEC members that need to take part are Iran and Iraq, where the big increases are likely this year, but there are big doubts over whether this can be achieved,” Barclays analysts Miswin Mahesh and Kevin Norrish said in a research note.
Schulz says only a major disruption in supply would put upward pressure on prices.
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“If there’s going to be an impact on the price going up, there’s going to be a war in the Middle East. Iran and Iraq fight each other or some refineries blow up. Anything that would disrupt supply at the refinery level would cause the price to go up.”
Tensions between Saudi Arabia and Iran also threaten to get in the way of a deal on production. The two countries are in opposing camps in regional disputes from Yemen to Syria. Last month, Sunni-ruled Saudi Arabia cut diplomatic ties with Shiite powerhouse Iran after the Saudi embassy and a consulate were torched by Iranian protesters angry over the kingdom’s execution of a prominent Shiite cleric.
— With files from the Associated Press