DUBAI/LONDON -- A conditional agreement among four major oil producers on Tuesday to freeze production at January levels is apparently not significant enough to turn the tide of falling oil prices, judging by market reactions so far.
The near-term North Sea Brent crude oil futures price shot up slightly more than $2 from Monday to reach above $35 per barrel in the lead-up to the Tuesday meeting among Saudi Arabia, Russia, Venezuela and Qatar. The West Texas Intermediate crude oil futures, another international bellwether, made a similar move, jumping a little more than $2 to above $31 per barrel. But both benchmarks shed all the gains and more once details of the agreement were reported.
The meeting of the oil exporters, held in Qatar, facilitated the first known face-to-face discussion between oil ministers from Saudi and Russia since crude oil prices accelerated declines in January. This occasion was made possible by Venezuela's desperate efforts to stop the oil-market slump.
The South American nation, which generates more than 90% of its export revenue from oil, has been hit hard by sinking oil prices. There is a growing concern that the country may default on its foreign debt obligations. Venezuela's external debt is said to total $130 billion.
Eulogio Del Pino, the country's oil minister, visited Russia and Saudi Arabia earlier this month to broker a meeting. Low oil prices have also been hurting Russia, as the country's military spending has been up due to its air-bombing campaign in Syria. In late January, Russian Energy Minister Alexander Novak indicated a possibility of the major oil exporter cooperating with members of the Organization of the Petroleum Exporting Countries, or OPEC.
But Saudi Arabia, which is not as keen on production cuts as others, says it would consider output cuts only if major oil producers, both OPEC members and nonmembers, all agree to lower their outputs.
According to Reuters, Saudi Oil Minister Ali al-Naimi noted after the Tuesday meeting that freezing output at January levels should be an adequate measure, although those levels are near record highs.
Saudi Arabia, the leading figure in the OPEC, has been a major cause behind the current market condition, as it has tolerated low oil prices with an eye toward stopping the rise of North American shale-oil producers. The Mideast kingdom's focus on maintaining market share ahead of profits has created oversupply conditions, lending to a 70% plunge in crude oil prices from the high in 2014.
With Saudi Arabia and other OPEC members having hiked outputs, roughly 2 million barrels of excess oil have been flooding the market daily. This is why many oil industry watchers, including U.K. research firm Energy Aspects, are unconvinced the Tuesday agreement will do much to fix the supply-demand imbalance.
"This is an announcement of a production freeze among countries whose production didn't even grow recently," Eugen Weinberg, head of commodities research at Germany's Commerzbank, was quoted as saying about the agreement in a Bloomberg report. "If Iran and Iraq are not a part of the agreement, it's not worth much - and even then there is still a question of compliance," he added.
Del Pino will be holding a meeting with his counterparts from Iran and Iraq in Teheran on Wednesday. But it remains to be seen if the Venezuelan oil minister will be able to persuade the two OPEC members to agree to a freeze on production hikes.
Iran has announced only recently plans to raise its daily output by 500,000 barrels. Many believe the country will not take part in an agreement involving Saudi Arabia, with which it severed diplomatic ties just last month. Meanwhile, Iraq is also looking to boost its oil production.