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“Freeze” is the new “cut” in global oil markets

A worker installs a pipe support for the oil transportation to Vankor at the Rosneft company owned Suzunskoye oil field, north from the Russian Siberian city of Krasnoyarsk.
Reuters/Sergei Karpukhin
Sentiment has cooled on possible production cuts.
By Melvin Backman
Published Last updated This article is more than 2 years old.

So much for that idea.

Saudi Arabian oil minister Ali al-Naimi made it extremely clear Tuesday at the CERAWeek energy conference in Houston, Texas that the global oversupply of oil is going to keep gushing.

“There is no sense in wasting our time in seeking production cuts,” al-Naimi said. “It will not happen. What is easier is for us oil producers to freeze supply.”

Just a couple short months ago OPEC production cuts were getting bandied about (some of which were allegedly Saudi Arabia’s idea), but those days appear to be over. OPEC member Iran, which al-Naimi didn’t call out by name when prodded, just got is US-imposed economic sanctions lifted and really, really wants to start start sending more oil overseas.

Last week it looked like Saudi Arabia and Russia might cap production, and oil markets surged. But then investors figured out that Iran wasn’t on board, and their enthusiasm waned.

“’Freeze’ gave people in the market hope that something might happen,” al-Naimi said.

And now that “something” has shifted from reducing supply to simply hoping demand catches up one day.

“We should allow markets to work, but we must remain vigilant, we need to work to understand new market dynamics,” al-Naimi told the Houston conference. Those new dynamics will include increased volatility, as it becomes harder for investors to tell what will happen long-term in crude markets.

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