Saudi-Russian freeze on oil output sets stage for more moves by OPEC – by Jeffrey Jones (Globe and Mail – February 17, 2016)

CALGARY – Don’t get too excited, oil buffs. Saudi Arabia and Russia have agreed, in principle, sort of, to freeze oil production as part of a deal that is conditional on others joining in.

Freezing won’t do the trick. Crude prices have skidded to levels of more than a decade ago based on the output levels that are in place now. In addition, Iran, Saudi Arabia’s OPEC partner, wants back into the export game in a major way after years of sanctions, and this looks to be a gargantuan hurdle to any concerted effort.

So, there’s no indication that the move, should it gain traction, will cut into the oversupply weighing on the market. Judging from the weakening of West Texas intermediate and Brent crude prices on Tuesday, the market is, at best, wary.

But, as they say, baby steps. The very notion that major producers are relenting with a declaration that supply and demand are out of whack shows an important realization – that casualties are piling up in the price war.

It raises the odds that the Organization of Petroleum Exporting Countries and others will eventually take more drastic measures, perhaps in June when the cartel’s top ministers have their next gathering to discuss output policy.

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