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CanAdian energy insight

Saudi Arabia and Russia Supply Deal is a Nice Gesture, But Not Enough

2/16/2016

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While Saudi Arabia and Russia's recent agreement to freeze oil output at near-record levels is a step in the right direction (signaling the first cooperation between OPEC and non-OPEC producers in 15 years), it will have no immediate impact on the global supply glut (still hovering at  ~1.5 million barrels per day). The deal to fix production at January levels, which also includes OPEC producers Qatar and Venezuela, is really just the first step in a serious of steps that will be required to stabilize and improve the global oil market. So, as opposed to taking more drastic steps such as reducing supply (which would have an immediate impact on price), OPEC members are taking a more gradual approach by looking to eventually meet demand. Another variable to consider is that Iran and Iraq are not a part of the agreement, which will significantly lessen the effectiveness of a coordinated freeze on production. Further, there is always the question of compliance as OPEC members in the past have been guilty of producing more than their stated quota. Overall, this production freeze will not immediately bolster oil prices, but it does create a better foundation for a potential price recovery in H2/16.
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    Jason Sawatzky

    A Canadian Energy expert 

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