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Oil prices responded half-heartedly this morning on the news coming out of the surprise Doha meeting that four producers, including Saudi Arabia and Russia, have agreed to freeze output at January levels.
Oil prices lost some of their gains made after highly volatile trading yesterday and this morning. Brent crude had jumped over 5 percent in early trading to hit above $35 per barrel on news of the unexpected Doha meeting among major oil producers, but those gains were shaved down a bit later in the day, with prices settling below $34 per barrel.
At Doha this morning, two of the world’s largest producers—Saudi Arabia and Russia—along with Venezuela and Qatar agreed to freeze oil output at January levels in order to stabilize the market. But even this lackluster deal requires that other major producers follow suit, which brings us back to where we started.
Related: Struggling Venezuela Buys U.S. Crude, But Who Will Pay for It?
That oil didn’t lose all of its Monday gains is largely due to the comments from acting OPEC president Qatari Energy Minister Mohammed bin Saleh al-Sada, who called the meeting “successful” and noted that “This step is meant to stabilize the market.”
The lack of a real deal here left the market entirely unimpressed.
Output is not being cut, simply frozen—and this is not enough to stabilize the market. Freezing production at January levels will have little to no effect as those levels were already too high. In January, both Saudi Arabia and Russia were pumping at record levels.
Related: UAE Offers India Free Oil To Ease Storage Woes
And even the freeze is not a done deal, as it requires getting other major producers to come on board.
A major obstacle will be getting Iran to freeze output at January levels. Coming off of sanctions just last month, Iran is back in the oil game and working on raising output by 500,000 barrels per day.
By Charles Kennedy of Oilprice.com
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Charles is a writer for Oilprice.com