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OPEC focus shifts from freeze to ceiling

|By Arabian Post Staff| With the Algiers meeting of OPEC drawing closer, the approach of the price boost initiatives is itself apparently evolving into something totally different from the initial idea of some sort of an output freeze. The new buzz word seems be ceiling rather than the freeze. Of course, the overriding consideration is voluntarism.

According to reports, the OPEC producers, particularly the camp led by Saudi Arabia, are considering a route to a deal that involves each country voluntarily agreeing not to raise production above a certain ceiling, instead of putting a freeze, as countries like Iran are in nno mood to cut output. There is a clear understanding that any deal without Iran and Iraq will be unproductive.

“The freeze negotiations are morphing into negotiations about production quotas,” Bloomberg quoted Olivier Jakob, managing director of Zug, Switzerland-based consultant Petromatrix Gmb, as saying. “Most countries are asking for a production level which includes some room for continued increase.”

According to Bloomberg, while there is increasing realization that allowing each producer to choose its own level would do little to curb surplus production in the short-term, it could provide a benchmark for future policy discussions and prevent a repeat of the failed push for a freeze earlier this year. Iran continues to resist any agreement that would stop it restoring output curbed by sanctions, the same position that prompted the collapse of talks in April.

“All the solutions are possible,” the agency quoted Algerian Energy Minister Noureddine Bouterfa as saying in Moscow. “Iran has the right to increase production to the pre-sanctions level. It is also the right of Libya, Nigeria to increase.”

Iraq said earlier this week that it has already told officials at the Organization of Petroleum Exporting Countries a level at which it is prepared to cap output.

While individual output ceilings are one route, other options remain including a stricter freeze, or even postponing any deal until OPEC gathers in late November in Vienna. Saudi Arabia and Russia have scheduled bilateral talks for October, which could help to fine-tune negotiations.

A freeze in production by OPEC and Russia would be the most effective way of stabilizing the market, Alexander Novak, the Russian energy minister, said in a joint press conference at the G-20 summit in China with his Saudi counterpart on Sept. 5. Novak said his country is ready to cap output at the level of any month in the second half of this year, a period that so far has delivered record volumes from both Russia and OPEC. (With Bloomberg)