After Russia and Saudi Arabia joined Qatar and Venezuela in discussing an agreement to cap crude output to stabilize sinking oil prices, the price of global benchmark Brent crude immediately began to stabilize, although the outlook for oil prices worldwide remained far from rosy. Within days crude prices started to dip again, as experts warned how difficult it would be to enforce an actual production freeze across countries.
“The four producers involved are already producing close to their peak,” Miswin Mahesh, an analyst at Barclays PLC in London, told Bloomberg News on Sunday. “The freeze is the oil-market equivalent of calling for a ceasefire when they’re running out of ammo.”
The output ceiling would freeze production at January levels, among the highest in years, leading critics to say the deal would not be nearly enough to stop prices from dropping. The price per barrel of Brent crude slid, finishing at $33.01 last week, while the price per barrel of U.S. benchmark oil associated with futures contracts for delivery in March slipped to $29.64 Friday.
Oil prices remain low, but some deals might be in the works soon to shake up the industry https://t.co/GfdpXIDMRI
— Intl. Business Times (@IBTimes) February 21, 2016
Since mid-2014, the price of crude has plummeted as the gap has widened between supply, increased by high levels of output in the Middle East and the U.S. shale boom, and demand, decreased by slowing economies around the world, especially in developing countries. The resultant glut pushed the oil price per barrel to 12-year lows in January.
Many crude-producing countries have called for a cap on production to stabilize prices at more-sustainable levels, while the Organization of the Petroleum Exporting Countries (OPEC) as a whole has refused, saying prices will even out on their own.
Qatar, Russia, Saudi Arabia and Venezuela announced Tuesday they agreed to freeze production as long as the deal was supported by other OPEC members, especially Iraq and Iran. (Russia is not an OPEC member, but it is one of the largest oil producers in the world.) However, Iran has expressed opposition to the deal. Meanwhile, some shale companies in the U.S., particularly in North Dakota, Oklahoma and Texas would be unlikely to cut their output in the event OPEC countries and Russia came to a deal, the Washington Post reported.
A concern has arisen about whether all countries that agree to the freeze would have the equivalent thresholds.
“Countries like Iran and Iraq have been out of the market for a while, and if they are to come back, you shouldn’t freeze them out where they are, you should freeze them at a higher level,” Bloomberg News quoted the Nigerian oil minister Emmanuel Ibe Kachikwu as saying Sunday.
Looking to the future, some experts were cautiously optimistic, as they pointed to the symbolic importance of OPEC countries cooperating with a non-OPEC nation to solve a worldwide problem.
“In the short term, oil prices may come under some pressure,” said City Index analyst Fawad Razaqzada, according to BBC News. Razaqzada added, “Nevertheless, it is a step in the right direction, and if other major producers follow suit, then at the very least it should help to prevent oil prices from suffering further big falls.”