Oil output freeze by Saudi, Russia to have ‘miniscule’ impact on oversupply

The agreement to freeze oil production at January levels by Saudi Arabia and Russia on Tuesday will have a negligible impact on oversupply in the market, an expert has said.

The oil producers announced the decision during a meeting in Doha but said the deal was dependent on other exporters’ participation.

Brent crude jumped by 6.5 per cent ahead of the agreement on Tuesday, but later dropped by 3.6 per cent. It is currently at around $32 per barrel.

ForexTime research analyst Lukman Otunuga said the agreement left investors empty handed.

“Not only has production been frozen at January 2016 record levels, which will have a minuscule impact on the excessive oversupply, the meaningless freeze is only valid on the premise of other producers joining in,” he said.

Oil ministers from the Organisation of Petroleum Exporting Countries are holding discussions in Tehran on Wednesday to talk about a possible production freeze between global oil producers.

“The obstacles for the pending production freeze are noticeably overwhelming as Iran remains on a quest to reclaim lost market share, while Iraq’s production continues to soar as it incessantly pumps to generate revenue to recover from years of conflict,” said Otunuga.

“OPEC’s greed has played a part in this painful decline and the visible conflict of interest between OPEC and non-OPEC members suggests that low oil prices may be the theme for an extended period,” he added.

Markets across the world reacted with confusion to the news, added FXTM’s chief market analyst for the United Arab Emirates market Jameel Ahmad.

“The UAE markets have acted like many other markets in terms of reacting to the news and by this I mean responding with confusion,” he said.

“A production “freeze” means absolutely nothing for those looking for an oil price rebound, because it basically indicates to onlookers that they are willing to leave output around record levels and also leave the aggressive oversupply in the markets as it currently stands,” he added.