Russia and 3 OPEC Members Agree to Freeze Oil Output (NYT)

In a sign of tentative cooperation among major oil producers, Qatar, Russia, Saudi Arabia and Venezuela announced a plan on Tuesday to freeze output at current levels, a move intended to help bolster energy prices.

The plan, albeit hardly concrete, reflects the troubled state of the oil industry.

With prices having recently slipped to new lows, major oil producers, particularly in the Organization of the Petroleum Exporting Countries, are trying to calm the markets with talk of a deal. But the proposal gives countries a potential out, a big reason oil prices gave up their initial gains on Tuesday.

While speculation focused for months on production cuts, the talk now centers on holding production steady. Even that would be helpful in a market where countries have been steadily ramping up production to record levels.

It is also symbolic that Saudi Arabia and Russia are now presenting a united front on oil. The two countries are geopolitical rivals, backing opposite sides in the Syrian civil war.
While major oil-producing countries have been floating ideas to the markets for months, divisions are heating up, as oil prices flirt with $30 a barrel.

Venezuela has been especially vocal about managing production. The country’s economy, which is critically linked to the prices of oil, is in disarray and its leadership has little financial backup.

Now, it appears to be getting support from Saudi Arabia and Russia. While such big players are feeling the pain, they are in better shape, making it easier to weather the price weakness.

“It is a positive step in the right direction in a transition period,” said a Gulf oil official who spoke on the condition of anonymity because of the delicate nature of the talks. “The main driver is prices going below $30 a barrel, which was very disturbing.”

He added that it was important that four major oil powers, Saudi Arabia, Russia, Venezuela and Qatar, were involved in the discussions. There is a “clear road map” of what countries to approach next, he said, an effort that could lead to a more formal agreement on production.

But the producers are not committing to a deal, highlighting the difficulty of the process. The four countries said they would freeze their output at January levels only if other major exporters did the same — and that is hardly an easy sell.

Iran has staked out a policy of increasing oil exports now that sanctions have been lifted as part of its nuclear deal, and Iraq has a longstanding policy of seeking to ramp up production regardless of OPEC price-stabilizing policies. And Russia, which is not a member of OPEC, has historically resisted any binding coordination with the OPEC cartel to bolster global oil prices.

“The four countries — Russia, Saudi Arabia, Qatar and Venezuela — are ready to freeze oil production at January levels if other producers join this initiative,” the Russian Ministry of Energy said in a statement issued after the talks.

The markets were lukewarm on the plan. Oil prices initially surged above $35.50 a barrel on discussion of a deal. But details prompted a pullback in prices, which dipped below $34.

“The market does not need a freeze. It needs a reduction,” said Michael Lynch, president of Strategic Energy and Economic Research in Massachusetts. “They are not offering anything like that.”

He added that the plan announced on Tuesday was in the early stages. “People are talking and admitting to concerns about price levels,” he said.

Read more: http://www.nytimes.com/2016/02/17/business/energy-environment/opec-...

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Replies to This Discussion

Permalink Reply by Barry D on February 17, 2016 at 2:20am

I suppose the question is - what does the deal mean?

Short term - very little. Production world wide is significantly higher than this time last year. Which means there is still an oil glut.

What needs to occur is a reduction in production, which would stabilize oil prices.

Long term - no one knows. The deal has not been officially ratified by the four countries. Plus Iran and Iraq are contemplating increases in production. So at this point the future of oil prices is murky at best. And, the economies of many OPEC nations are predominantly dependent on oil exports. Don't look for a reduction in production anytime soon. This will keep prices low for the foreseeable future.

A positive note - it appears that the effort by Saudi Arabia to increase market share through low prices has failed.

So what does it mean for us here in Shale Country? The status quo will remain, unfortunately. 

Permalink Reply by Joe on February 17, 2016 at 3:19am

To cut and paste a sentence out of this article. "The country’s economy, which is critically linked to the prices of oil, is in disarray and its leadership has little financial backup." I keep reading and listening to the news hearing similar statements that all these oil producing country's are out of money. ????? OK let's go with reports that they can survive/make money at $40 a barrel. Now then what happened to all the money they made when they got $100 a barrel?? Aaah! ptt! right away you have an answer for me. Greed and corruption siphoned off the money leaving the citizens that have no money holding the bag. Since their laws are not the same as ours they can and should have uprisings and go get the money that was stolen back and hang the ones that stole it. Then they can weather the storm or, as we should do learn to live with the money at hand not increase/make new taxes. For example: here in Pa we don't have a budget, our taxes are out of sight. Our children aren't any better educated than the average State in this country. Yet!!! we are still building these  "Taj Mahal" schools at tax payers expense. What's more important education or what the school building looks like? Does cookie cutter schools make financial sense? Well...sorry for getting off topic.

Permalink Reply by Joseph-Ohio on February 17, 2016 at 3:41am

Very true - gouged for decades - the gouging fed the '(inflated ?) economy' for those decades - to the point of the population becoming accustomed to it - and then they threw everyone under the bus by taking their jobs away.

The economies they really fed were those of the M.E. welfare / socialist / despotic states / countries if you ask me; and by neglecting our own domestic economy to this point of ruin.

I've read one million gas and oil jobs (alone) lost so far at this point in time.

JMHOs

Permalink Reply by bo boboski on February 19, 2016 at 7:36am

It appears that what they are agreeing to is not boosting production any further than current levels. Which isn't really going to help the oil glut. Or the price of oil.They are already producing a high levels . storage facilities are about full. What we need for them to do is, CURTAIL production. At least it's a start,that they are agreeing on something.

Permalink Reply by Joe on February 19, 2016 at 9:21am

I'm sorry but, I like the price of gasoline, home heating oil and Nat gas to heat my home where it is.

Permalink Reply by Robert Bond on February 19, 2016 at 9:32am

That is OK Joe you are entitled to have an opinion. In my opinion we would be better off as a country with higher gas and oil prices to provide some stability to the prices and the economy.  These wild swings in prices only create higher prices in the future  and more turmoil in the economy.  Just my opinion.

Permalink Reply by Joseph-Ohio on February 19, 2016 at 10:29am

Joe,

I like the low prices too.

Forge an Americas Trade Agreement.

Lock out OPEC / S.A. / Iran etc. with a Tariff and  Embargo and keep the prices the same.

Build new Refineries to process our own Light Shale Oil.

Have the best of both world's for the Americas.

JMHOs

Permalink Reply by Barry D on February 19, 2016 at 1:50pm

Joseph,

As appealing as a tariff or embargo may sound, they are a bad idea.

Herbert Hoover had the same philosophy during the recession at the end of his term in office. The Smoot-Hawley tariff worsened the recession and headed our economy into depression (FDR doubled down and made it the "Great Depression").

Our economy is intricately entwined with the global economy. If we place tariffs on a country or product there will be retaliation which will harm other sectors of our economy. We are currently in a deep recession and a tariff/embargo and subsequent retaliation would lead to a depression.

Instead, our politicians need to release the power of our economy. Release it from the chains of over regulation (Paul, notice I said "OVER" regulation). Allow the economic arsenal that is pent up.

By allowing our economy to freely compete in the world economy I believe we would realize the results that you seek with a tariff/embargo (without the retaliation.

Permalink Reply by jerry lee nichols on February 19, 2016 at 2:35pm

Permalink Reply by Joe on February 19, 2016 at 4:30pm

This is what free trade has done for our trade deficit.
https://www.census.gov/foreign-trade/statistics/historical/gands.pdf


Permalink Reply by Joe on February 19, 2016 at 4:49pm

Barry I don't believe what happened back then, what went wrong, what went right applies today. The world has changed to much that those rules don't work now. Here is a link to our history.
https://en.wikipedia.org/wiki/Foreign_trade_of_the_United_States

There are things like..In 1985, the U.S. had just began a growing trade deficit with China. During the 1990s, the U.S. trade deficit became a more excessive long-run trade deficit, mostly with Asia. By 2012, the U.S. trade deficit, fiscal budget deficit, and federal debt increased to record or near-record levels following the implementation of broad unconditional or unilateral U.S. free trade policies and formal trade agreements in the preceding decades.[18][19]

The US last had a trade surplus in 1975.[20] However, recessions may cause short-run anomalies to rising trade deficits. The balance of trade in the United States has been a concern among economists and business people. Warren Buffett, founder of Berkshire Hathaway, was quoted in the Associated Press (January 20, 2006) as saying "The U.S trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to political turmoil... Right now, the rest of the world owns $3 trillion more of us than we own of them." And that was in 2006. As you can see by the charts I posted we are way worse off now.

Permalink Reply by Joseph-Ohio on February 19, 2016 at 10:34pm

Barry D,

Personally, I don't buy what you're selling here.

Read your own statement above ''We are currently in a deep recession.....". So you suggest playing along with basically the status quo principals which have already led us to where we are (which I also see as a ' deep recession').  All of that doesn't work for me Barry D.

'Retaliation' is a word you use as if we are ourselves are not supposed to exercise.

When in a war (Trade or Hot) you better get used to exercising it and better also expect your enemy to do the same - if you don't you will most certainly lose. 

There is a difference between an opponent and an enemy and I think we all need to remember that. 

I don't think we have to lose to these enemies myself.

I say stomp the living crap out of them - whatever it takes. If they're not there they don't retaliate.

Right now I think we need to retaliate - and prevail.

JMHOs

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