The ‘freeze’ that failed to warm oil market sentiment

In more “normal” times the oil market might have analysed the implications of a highly conditional “output freeze” agreement between a handful of producers amid a persistent supply glut, before reacting.

But these are not normal times. The deal – that actually wasn’t – ended up whiplashing the already panicky market and leaving it hopelessly hopeful.

Brent crude clambered above US$35 as February drew to a close, with NYMEX light sweet futures around US$33 a barrel, both 25 per cent above the year’s lows touched on January 20, though nothing had visibly changed on fundamentals.

What had changed was a lot of jawboning by a few oil ministers upending earlier convictions that an Opec and non-Opec collaboration to rein in supply was out of the question. By the end of the month, the can had been kicked down the road, to a mid-March meeting between major producers flagged by Russian energy minister Alexander Novak.

The fact that crude prices have more than halved since Opec’s landmark decision in November 2014 to defend market share at any cost, leaving producer pockets across the globe in tatters and equilibrium seem increasingly like a mirage, lent credence to the deal between Saudi Arabia, Russia, Venezuela and Qatar at a meeting in Doha on February 16.

Only, it was so conditional – other major Opec and non-Opec producers had to join in for the agreement to take effect – and so watered down – capping output at January levels rather than actually cutting it – that it was hard to take it seriously.