Iran sees oil freeze pact as not enough to help market - Iranian sources

By Parisa Hafezi and Alex Lawler

ANKARA/LONDON (Reuters) - Iran believes a global agreement to freeze oil output will not be enough to help prop up prices as the world is producing too much crude, Iranian oil sources told Reuters.

Iranian Oil Minister Bijan Zanganeh and his counterparts from Qatar, Iraq and Venezuela held talks in Tehran on Wednesday aimed at persuading Iran to join a global pact to restrain output, agreed this week by OPEC leader Saudi Arabia and non-OPEC member Russia, the world's two largest oil exporters.

Zanganeh chose his words very carefully after the meeting saying Iran, OPEC's third largest producer, supported the initiative as a first step to rebalance the markets and help prices recover from their lowest in over a decade.

But during talks Iran stuck to its standard line that Tehran needs to regain market share it lost during years of sanctions while adding that regardless of what Iran does, the world was already awash with unwanted oil.

"The problem in the oil market is the glut. There is a need to do something to bring down these extra barrels. The freeze for those people that have been producing to the maximum does not help the market," one Iranian oil source familiar with discussions told Reuters.

A second Iranian source said the global pact idea should be discussed further when "countries that have increased their output - mainly Saudi Arabia - drop their production and Iran reaches pre-sanction levels of production".

OIL MARKET UNIMPRESSED

Saudi Arabia and Russia said the global deal to freeze output could become the first step in the right direction to balance the market if all major producers agreed to abide by it.

But the idea has failed to impress the market so far with oil prices fluctuating sharply this week and trading on Thursday at $35 per barrel.

This is a fraction of what most producers need to balance their budgets resulting in ratings agency S&P downgrading ratings on major oil nations on Wednesday.

The West's energy watchdog, the International Energy Agency, said this month that even in the optimistic scenario of flat OPEC output this year, the world would continue to stockpile huge volumes of unwanted crude adding to the already record inventories.

The IEA said it saw the pace of stockbuilding slowing in the second half of 2016 but still continuing until 2017: "In the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term."

Meanwhile, the likelihood of OPEC keeping output flat is very low given that Iran has pledged to raise exports after the lifting of Western sanctions in January.

The sanctions, imposed over Iran's nuclear programme, were lifted last month after an agreement with world powers, allowing Tehran to resume selling oil freely in international markets.

Tehran has pledged to raise supply by around 1 million bpd in the next 6-12 months and on Wednesday some Iranian banks were reconnected to the SWIFT global transaction network, which will allow it to facilitate banking business.

(Additional reporting by Rania El Gamal; Writing by Dmitry Zhdannikov)