Oil prices formed a low and rallied when a plan between Russia and several OPEC members was announced, which saw each country limit its production levels to the output seen this January. I believe this deal wasn't very effectual in the first place, but with the most recent data we see that it will likely not propel oil prices higher unless major changes are made to this plan.
The plan originally saw OPEC members as well as Russia freeze their output at the production levels they reported for January 2016 -- this would have been not very efficient in propping oil prices up, as OPEC as well as Russia produced oil at a very high rate in January. Freezing production at (or near) record levels is not a great idea if your goal is reducing production to balance the supply and demand gap.
In this chart we see that OPEC production was very close to its record high in January 2016, up 130,000 barrels a day from the December level, up 500,000 barrels a day from the 2015 average and up 1.5 million barrels a day from the 2014 average. Since the global supply and demand imbalance stands at 1.5 million to 2.0 million barrels of oil each day, freezing production just 80,000 barrels below last year's peak production number (reported for November) is not the appropriate way to balance this gap. On the other side of the deal we had Russia, which reported record production in January as well: The country produced 10.88 million barrels a day in January, which was a post Soviet record for the country, thus positioning the country to freeze production at record levels (once again, not the right move if your goal is to balance a huge overproduction issue).
The deal was already proposed to fail, but recent news will mean the chance of a beneficial impact on the global supply - demand gap will be even lower:
On Friday Saudi Arabian official (and deputy crown prince) Mohammed bin Salman announced that Saudi Arabia would only participate in a production freeze if all other OPEC countries, including Iran, as well as non-OPEC members such as Russia would freeze production as well. As we know Iran is not looking towards freezing production any time soon, as the country desperately seeks to expand oil production after sanctions have been lifted a couple of months ago. The EIA forecasts that Iranian oil production will average 3.1 million barrels of oil in 2016, and 3.6 million barrels of oil in 2017.
This would represent a huge increase of almost thirty percent over 2015's production level of 2.8 million barrels a day. Iran thus does want to freeze production at the current level at all, which ultimately means that Saudi Arabia will not want to freeze production either (according to the Prince's words).
As if this wasn't already bad enough, Russia -- the other major country in the deal -- does not seem to be willing to freeze production either. In March the country's production hit 10.912 million barrels a day, which was an increase of two percent in comparison to the prior year. This production level also was higher than the one in January, which (according to the production freeze deal) should have been the absolute limit. Apparently Russia is not seeing any benefit in following the plan which was already poised to fail (as, even when every country agreed to freeze production at the January level, the supply - demand gap would not have closed), and with Saudi Arabia's announcement that they will not participate if Iran does not freeze its production (which is very unlikely), it seems the two biggest producers of the proposed production freeze are both not willing to actually act on it.
Due to lower consumption in the country, Russian oil exports rose by ten percent yoy (to 5.6 million barrels a day) in March, which means pressure on global oil prices will be even higher, as the country is selling a growing amount of its production on the global market (instead of consuming oil in the country).
In April OPEC members and Russia will once again come together to discuss coordinated moves towards production freezes (or production cuts), but if we use past meetings and agreements as a guideline, we can assume that the efforts will not be very fruitful. If those countries would agree on a production cut by five percent, and every member would actually do so, the global supply - demand gap would be closed and oil prices could rally substantially, but I believe such an agreement is rather unlikely.
Russia and OPEC members announced in February that they wanted to freeze production at the January level in order to battle global overproduction, but this would not be very effectual, as production levels in January stood at (or near) record highs.
Right now it looks like the deal (which would not have closed the supply - demand gap anyways) is falling apart, as Saudi Arabia announced it only will freeze production if Iran does so as well (which is very unlikely), and Russia keeps increasing production levels (and export levels) as well. With the biggest two producers not really interested in a freeze (and even less, a production cut), the outcome of this month's OPEC - Russia meeting will likely not be impactful.
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