Oil price falls again as ‘freeze’ deal disappoints

Oil gave up early gains Tuesday to trade lower as talk by top producers Saudi Arabia and Russia about freezing production was seen as too weak to turn the market around.

In a bid to stabilise an oversupplied market, both exporters said they would keep output at last month’s level going forward, but only so long as other major producers followed suit. In the late European afternoon, Brent North Sea crude was 78 cents down at $32.61, its session low, having gradually slipped from its $35.55 high seen just before the announcement.

US benchmark West Texas Intermediate for March delivery was down 51 cents from Monday’s closing level at $28.93. “The news has actually disappointed the market slightly because some people had hoped to see a cut rather than a production freeze,” City Index analyst Fawad Razaqzada told AFP.

This prompted a “lukewarm response” from the oil market, analysts at Capital Economics noted. “For the deal to have any teeth, Saudi Arabia in particular needs to be willing to cut output, not least to offset the increased supply still to come from Iran,” they said. Iran, which has been pumping oil at maximum levels since a deal with Western powers ending sanctions, said in response to the freeze announcement that “there is room for discussion” but Oil Minister Bijan Zanganeh added that Iran “won’t relinquish” its market share. – Producers already at capacity – The Saudi and Russian oil ministers, along with their Venezuelan and Qatari counterparts, “agreed to freeze the production at (the) January level provided that other major producers follow suit,” said Qatar’s Energy Minister Mohammed bin Saleh al-Sada earlier. “This step is meant to stabilise the market,” said Sada, who is acting president of the OPEC oil cartel, describing the meeting in Doha as “successful”.

But analysts pointed out that, with the possible exception of Saudi Arabia, the parties to the agreement are already pumping at capacity, making a “freeze” somewhat pointless. “This freeze in no way changes market fundamentals because none of the four countries had been expected to increase production significantly any more,” energy expert and university professor emeritus Jean-Marie Chevalier told AFP in Paris.