Last weekend OPEC Secretary General Mohammed Barkindo announced that there would be only consultations, but no freeze decision at the upcoming Algeria meeting. On Thursday, it was revealed that mid-level officials from Saudi Arabia and Iran were holding talks in Vienna in preparation for Algiers, leading to speculation about an impending freeze deal. But on Friday “sources” speaking for Iran and Saudi Arabia both said no deal.
In our notes on the topic, we have stressed two fundamental positions that have not changed: Saudi Arabia wants Iran to freeze production & Iran says it cannot freeze so soon after nuclear sanctions were lifted. Thus it’s not hard to see why the push for a September freeze is now on ice.
Reuters also reported late Thursday that Saudi Arabia had offered to share in a combined one million barrels a day production cut with Kuwait, UAE and Qatar in exchange for an Iran freeze. We continue to think a change in production policy now is too soon for the Saudi market share strategy as it would boost US production. So if the Reuters report is accurate, we view it more as a public relations move - the Saudi’s knew Iran could not agree and now Iran looks like the uncooperative party within OPEC. Cue the Russians to say asking Iran to freeze is unfair.
As a result, we think a September production freeze is off the table. To reset expectations, Secretary General Barkindo might want to repeat his announcement from last weekend that Algiers will be about consultations not decisions.
*This is an excerpt from a longer note for institutional subscribers. For more information email sales@hedgeye.com.
