Oil lingers below $30 as Saudi Arabia – Russia deal disappoints

News of a deal between two major oil producers – Saudi Arabia and Russia – to freeze oil output on Tuesday caused oil prices to spike as much as 6 per cent. Officials from Venezuela and Qatar were also part of the deal that took place in Doha.

But soon after the formal announcement of the agreement, there was a sharp reversal in oil prices as many soon realized the deal may not remove a significant number of barrels from the market.

Brent crude, the international benchmark, had fallen 4 per cent to $32.06 a barrel by 18:54 GMT, marking a 10 per cent intraday swing and was down 3.6 per cent on Tuesday. Today, it was 1.9 per cent higher in morning trade at $32.80 a barrel. WTI oil, the US benchmark, was up 1.4 per cent today at $29.44 after easing 1.4 per cent through Tuesday’s session.

Markets realised that any potential freeze would still be locking in record levels of output. The move was seen as largely symbolic, and there were concerns other key producers might prove a stumbling block. Basically even if output from OPEC and Russia can be capped at January levels, this would still be exceptionally high. In other words, this deal would simply maintain the excess supply that is now in place, and would keep oil prices depressed.

The deal was still contingent on other major producers agreeing to join the freeze, which will probably complicate efforts. Iran, another big oil producer, was not part of the deal. Meanwhile, Iran has repeatedly said that it plans to revive its oil exports after the lifting of sanctions against its oil industry last month. This week it loaded the first three tankers with crude for Europe since 2012.

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