The oil market was gripped this week by an output freeze deal between the world’s top two producers Saudi Arabia and Russia.
Prices initially rebounded on Tuesday, before hitting reverse as traders assessed the conditional agreement between Saudi Arabia and Russia and two other producers to limit output.
In a bid to stabilize an oversupplied market, Russia and OPEC members Saudi Arabia, Venezuela and Qatar announced Tuesday that they had reached a preliminary deal to freeze output at January levels, provided that other major producers followed suit.
The news sparked hopes the market would stabilise after sinking to near 13-year lows last week on the stubborn supply glut — but disappointed those looking for an output cut.
“It has been another tumultuous week for oil markets this week after … newsflow has pointed to a potential resolution to the ongoing supply glut,” said analyst James Hughes at traders GKFX.
“Undoubtable the biggest story of the week was the news that Saudi Arabia and Russia had agreed to freeze production … however the obvious problem with that is that we are already at record highs for oil production.
“The news saw oil prices jump higher, before dropping on the prospect that Iran and Iraq were not on board.”
Saudi oil minister Ali al-Naimi said Tuesday’s decision was “the beginning of a process which we will assess in the next few months and decide whether we need other steps to stabilize… the market.”
Iran meanwhile entered talks with other producers to address low prices — but stopped short of committing itself to any production cutbacks.
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” market share.
The 13-nation OPEC oil cartel, of which Saudi Arabia, Venezuela, Qatar and Iran are members, has refrained from cutting output as it looks to maintain market share in the face of competition from US shale oil producers.
Russia — which is not an OPEC member — has seen its recession-hit economy damaged further by the slump in oil.
Oil prices also ran out of steam on Thursday and Friday after the US Department of Energy said US commercial crude inventories rallied 2.1 million barrels last week to reach the highest level in more than eight decades.
An inventories rise typically suggests soft demand in the world’s biggest oil consumer and is bad news for a market wallowing in excess supply.
Saudi Foreign Minister Adel al-Jubeir meanwhile rejected any reduction in his country’s crude output.
“If other producers want to limit or agree to a freeze in terms of additional production, that may have an impact on the market, but Saudi Arabia is not prepared to cut production,” Jubeir told AFP in an exclusive interview.
In early afternoon deals on Friday, US benchmark West Texas Intermediate for March delivery slid 81 cents to $29.96 a barrel.
Brent North Sea for April dipped 77 cents to $33.53 per barrel compared with Thursday’s close.