Oil expert Tom Kloza cautions against getting too excited over Tuesday's reported output freeze by four of the world's biggest oil producers.
The Saudi, Russian, Qatari and Venezuelan oil ministers announced the proposal after a previously undisclosed meeting in Doha. It could become the first joint OPEC and non-OPEC deal in 15 years, aimed at tackling a growing oversupply of crude and helping prices recover from their lowest in over a decade. However, Iran was absent from the talks and is determined to raise production.
But Kloza, co-founder of the Oil Price Information Service, said such a deal seems unlikely — and it's not really a solution, anyway.
"There's too much oil. It's that plain and simple. And [major producers] would have to cut, not to freeze, to really impact [the market]," Kloza told
CNBC. "I think you can expect that they're all going to produce willy-nilly like they have. And it's going to take some time for the oil market to rebalance," he said.
Freezing production at January levels in a "hopping" economy would create 2 million barrels per day in excess oil supply, said Kloza, global head of energy analysis at OPIS, a comprehensive source for petroleum pricing and news information. "And if the economy slows down, that could be 2½ million barrels a day [of] too much oil."
Saudi Oil Minister Ali al-Naimi said freezing production at January levels — near record highs — was an adequate measure and he hoped other producers would adopt the plan.
Venezuelan Oil Minister Eulogio Del Pino said more talks would take place with Iran and Iraq on Wednesday in Tehran,
Reuters reported.
"The reason we agreed to a potential freeze of production is simple: it is the beginning of a process which we will assess in the next few months and decide if we need other steps to stabilize and improve the market," Naimi told reporters.
"We don't want significant gyrations in prices, we don't want reduction in supply, we want to meet demand, we want a stable oil price. We have to take a step at a time," he said.
Meanwhile, Qatari energy minister Mohammad bin Saleh al-Sada told a news conference that the step would help to stabilize the oil market, which has experienced price declines not seen since the early 2000s because of a supply glut.
Analysts said that the decision was a move toward bringing supply and demand into balance, but global inventories remain near record levels and are likely to dampen any price rallies.
"I don't think it will have a huge impact on supply/demand balances, simply because we were oversupplied in January anyway. We’re just even more oversupplied now," Energy Aspects analyst Dominic Haywood told
Reuters.
"So in that regard it’s not huge, but it’s a step in the right direction."
But Kloza isn't so convinced.
"People recognize that getting those four parties together and actually having a production freeze is a little bit like getting Johnny Manziel and Charlie Sheen to pledge to live very, very clean lives for the next few years," Kloza said, making an analogy to reports of erratic behavior by Cleveland Browns quarterback Manziel and actor Sheen.
To be sure, oil prices continued to slide after the initial buzz about the freeze. Brent was down $1.10 at $32.29 a barrel by 11:30 a.m. EST (1530 GMT), after rising earlier to $35.55. U.S. crude futures slid 50 cents to $28.94, down from the day's high of $31.53.
(Newsmax wire services contributed to this report).
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