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A Rocky Freeze

Oil Production Agreement Disappoints Markets

While the morning of February 16, 2016 began with high hopes across oil markets that an agreement to freeze oil production at January 2016 levels would have an impact, as details on the deal were learned its potential impact was diminished.

The announcement by Russia, Saudi Arabia, Venezuela, and Qatar, who collectively produce around 25 percent of the world’s oil, was made contingent on participation from other large producers, including Iran and Iraq.  When Iran announced that it would not be committing, the strength of the agreement and its ability to have an impact on the current oil glut, was put into question.  Meetings on the agreement are still on-going.

While the short-term impact of the agreement may be limited, some OPEC-watchers see hope for a future agreement that has impact.  Independent oil consultant Sadad al-Husseini was quoted in the Wall Street Journal stating that “the meeting was an excellent first step.”  Russia and Saudi Arabia, respectfully focused on foreign policy issues and a market share battle with the United States, have long resisted any effort to reduce production.

With global demand continuing to show signs of weakness, a “quick fix” for low energy prices is unlikely.  With “lower for longer” mentality now driving operating decisions, PESA provides members with unique opportunities to gain insight from industry thought leaders and peer companies.  This knowledge can help navigate the downcycle and prepare for changes ahead.

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