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Page added on February 16, 2016
The Glaring Problem With Oil Giants’ Production Freeze
Oil traders aren’t too impressed with Saudi Arabia and Russia’s accord to cap oil production at near-record levels.
After rising above $31.50 per barrel when news of this agreement was reached, front-month West Texas Intermediate futures contracts have since retreated to below $30 per barrel.
It’s not just the production freeze, rather than an outright cut, that helps explain the minimal impact this announcement has had on prices, or the conditions attached to it. What also doesn’t help buoy prices is the fact that for the two largest oil-producing nations, there’s been a de facto ceiling at these levels for an extended period of time.
Over the past four years, there has been very little change in Russian or Saudi crude output—especially compared to other major oil-producing nations:
During this span, Libyan and Iranian oil production have plunged, North American output skyrocketed thanks to the shale revolution, and Iraqi production has ratcheted up. Production growth (or a lack thereof) in these nations, not Russia or Saudi Arabia, will play the driving role in determining when prices recover, and to what level. Saudi Arabia has spare capacity to boost output further; Russia, for its part, will be challenged to maintain production at these elevated levels in light of the decline rates in its Siberian fields.
A review of the resolution to the stretch of low oil prices in the late 1990s suggests that if history repeats itself, progress on bringing the market back into balance from the supply side will be an incremental and prolonged affair requiring cooperation between OPEC and non-OPEC producers.
“There are big countries missing here, obviously Iran is not part of this deal, and the other big country that is missing on this new cartel, if we call it that way, is Texas, North Dakota, and Oklahoma,” said Bloomberg Chief Energy Correspondent Javier Blas. “We need the U.S. oil men to join. If they don’t join, we are not going to have the kind of muscle that you need to influence the market.”
5 Comments on "The Glaring Problem With Oil Giants’ Production Freeze"
Northwest Resident on Tue, 16th Feb 2016 7:23 pm
When you’re pumping flat out and can’t possibly increase production, while at the same time the price of oil has plummeted and threatens to keep on sinking, what do you do? Answer: You schedule a high level top secret meeting, rev up the mass media propaganda and public relations machine, and you reach a strategic agreement to… not increase production.
Pure P.R. Lipstick on a pig. Nothing but spin.
Now if they could only get those soon-to-be bankrupt shale companies to agree to stop flooding the market. What A Joke.
Based on this world shaking “freeze production” announcement, we can reasonably assume that TPTB consider the majority of humanity to be ignorant and stupid. And that, of course, is a reasonable assumption!
Truth Has A Liberal Bias on Tue, 16th Feb 2016 8:23 pm
I call bullshit. Saudi Arabia has zero spare capacity. They’re maxed out producing every drop they possible can. They have been for several months. This is all they can do folks. And they can’t do it for long. That’s why they’re talking instead of pumping more oil. It was a desperate game they played and they can see it ending. Hence the bullshit agreement. Qatar has been flat since 2011. Same with Venezuela. Russia is at peak. Saudi is at peak. So what do they do? Agree to freeze production levels lol whatever dudes! It’s all downhill from here. Go sell your story to someone who believes fairy tales.
You know who else is flat? Kuwait and UAE. Should’ve invited them in on the deal too then we’d have an even bigger joke to laugh at.
Alpha9 on Wed, 17th Feb 2016 3:18 am
Wow. US and Iran the only production drop countries.
That’s not good.
penury on Wed, 17th Feb 2016 10:02 am
Rather than a meeting to reduce production, the world needs a meeting to increase utilization. Over production is not the problem. The problem is industry is dying, the people have no money the only demand is on the military side.
Refugees do not buy cars, houses, electronics or any of the toys that we need to sell, STOP THE BOMBING
Davy on Thu, 18th Feb 2016 6:22 am
“The One Shock Russia Dodged Is Now Catching Up With Putin”
http://www.bloomberg.com/news/articles/2016-02-17/the-one-shock-sidestepped-by-russia-is-catching-up-with-putin
“With employers already hunkering down after oil’s collapse and the crash in the ruble to record lows last month, the prolonged downturn is giving way to adjustments in the labor market that are further squeezing household finances. As expectations fade for a quick turnaround after the biggest drop in consumption under President Vladimir Putin, the challenge for authorities is how to contain discontent without further straining the budget before parliamentary elections later this year.”