Saudis, Russians Fail To Cut Oil Production, Will Freeze Output At Record January Level

Tyler Durden's picture

Update: in case it was not clear this non-deal is a non-event, here it is again:

  • IRAN'S OIL MINISTER SAYS TEHRAN WILL NOT GIVE UP ITS MARKET SHARE - SHANA

We hope that clears up any confusion about where oil is going next, and also about whether OPEC is still a production cartel.

* * *

Last night when previewing today's main event, the "secret" meeting between the Saudi and Russian oil ministers, we explicitly said this deal would not "lead to a cut in production", and sure enough just two hours ago the meeting between the two oil superpowers concluded and as expected the two failed to agree to any production cut; instead what they did agree on was to "freeze" production at January's already record levels, and furthermore make the agreement contingent on other OPEC members complying, something Iran has already said it would not agree to.

  • SAUDI OIL MINISTER SAYS AGREED TO FREEZE OIL PRODUCTION
  • OIL PRODUCTION FREEZE CONTINGENT ON OTHERS FOLLOWING: QATAR

Here is Reuters' take:

Top oil exporters Russia and Saudi Arabia agreed on Tuesday to freeze output levels but said the deal was contingent on other producers joining in - a major sticking point with Iran absent from the talks and determined to raise production.

 

The Saudi, Russian, Qatari and Venezuelan oil ministers announced the proposal after a previously undisclosed meeting in Doha - their highest-level discussion in months on joint action to tackle a growing oversupply of crude and help prices recover from their lowest levels in more than a decade.

 

The Saudi 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. Venezuela's Oil Minister Eulogio Del Pino said more talks would take place with Iran and Iraq on Wednesday in Tehran.

 

"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.

It was not exactly clear how "freezing" output at a record level will "stabilize and improve" the market but we will cross that bridge in a few months.

So what does the deal really mean?

As Bloomberg's Julian Lee explains, "it’s hard to see big reduction to global crude glut after world’s biggest producers, Saudi Arabia and Russia, agreed to freeze output at last month’s levels."

In fact, it is hard to see any reduction in the glut because both nations are already pumping near record levels and the deal depends on other cash-strapped producers making similar commitments:

  • Saudi Arabia produced 10.2 million B/D in Jan., the highest January level since 1981, according to historical data from Centre for Global Energy Studies
  • Russian output was a post-Soviet record 10.88m b/d in Jan.

Also, the Russian offer to freeze output comes at time when growth from new fields is waning anyway; IEA expects Russian output to fall 160k b/d over course of 2016; In other words, the two nations "agreeed" to keep pumping at a record pace and logistical considerations may force Russia to reduce production in any event.

Lee adds that the market needed an unlikely pledge between the the nations to cut supplies, rather than freeze them, in order to extend recent rally, curb oversupply. This has not happened

Then there is the question of contingency: If others do participate, the acid test for the output freeze and its impact on supply may come in summer when Saudi production normally rises to meet higher domestic demand.

Summarizing the above is Global Risk Management oil risk manager Michael Poulsen who said that "the odds of a supply cut was slim-to-none, but that slim chance was priced in. What we saw is no production cut, just freezing of levels in January when producers were producing as much as possible - so everyone will continue to produce as much as they can for the foreseeable future. Effectively, they have agreed to continue producing at maximum capacity."

Worse, the non-deal appears dead in the water before it was even announced as it is practically impossible to get support for the deal from other OPEC nations such as Iran, Iraq or Libya for following reasons:

  • Iran is raising production following easing of sanctions
  • Iraq is rebuilding industry after decades of war, sanctions
  • Libyan production hampered by unrest in country, output will be restored when possible

In fact, Bloomberg already added that Iran will seek to regain market share to pre-sanctions level, regardless of price, quoting a person with direct knowledge of country’s plans.

  • IRAN SAID TO KEEP BOOSTING OIL MARKET SHARE AFTER ACCORD

The Iranian source said that producers responsible for present prices should cut their production to Dec. 2014 level, person says, which clearly is not going to happen. 

It also means that with the contingent deal already having one non-compliant OPEC member, the entire deal was nothing more than a farce to top all those relentless oil production cut headlines.

The good news is that the relentless crude short squeezes on randomly flashing headlines about imminent "OPEC oil production cuts" will go away, if only for a few weeks.

Meanwhile, as we said last night, the market can focus on the real underlying dynamics: not only excess supply but clearly slowing global demand...

 

... and U.S. oil land storage, which as we and the market have been warning, is about to overflow. This perhaps explains why after surging in the aftermath of the headlines from the non-deal hitting the tape, WTI is back under $30. As attention now shifts to nearly full land storage, an oil price in the teens could be next because as BMI Research writes, the risk of a price collapse into the $10-$20/bbl range is mounting as the drop in U.S. crude demand may outpace production declines. Change "may" to "will", and the next big catalyst on the oil horizon becomes apparent.

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45North1's picture

With such a vibrant black market in oil (ask ISIL) ....  what difference does it make?

VinceFostersGhost's picture

 

 

The oil storage lines of 2016......tankers stacked up everywhere.

 

Stop selling oil cheap?

 

Sorry....but we NEED the money!

new game's picture

that is it. desparate for cash. cash poor, oil rich. so human nature, selling at the bottom. should be doing the opposite. gold next? selling at the bottom is soooo government...

Motasaurus's picture

As though the Saudis and Russians discussed oil at all at that meeting. Well, perhaps they did, but as in "targetting oil production and infrastructure" as a threat against Saudi incursion.

FX223's picture

Considering Russia is pounding isis and isis like fighters and with SA at the boarder in Turkey technically taking position to support those same isis like fighters...one must wonder if oil was the actual topic of that secret meeting or is the cuckold SA sub to another master?

LordBuckFast's picture

The oil based ponzi scheme will be kept alive for as long as possible, with the introduction of NIRP and a ban on all but the smallest denominations of cash, because the elite do not give a damn, as they will soon be looking to run and hide in those nice underground bunkers paid for with citizens taxes, after we enter a full economic collapse and the commencement of WW3, plus they will make sure that there are enough Jihadi’s in the West to start a race war.

That should be enough to cover up the failed fiat ponzi scheme and take care of the ‘excessive’ population!

Yet another example of why we in the west are heading towards the abyss......

http://beforeitsnews.com/global-unrest/2016/02/muslim-migrants-abuse-you...

Baby Bladeface's picture

To the abyss should go your net.kook spammery.

Better for you to go chase bigfoots...

open-range's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.wallstreet34.com

gwar5's picture

Good time to buy that factory supercharged 750 hp Dodge Challenger gas hog. 

indygo55's picture

Yup go and buy it, and get one of those 9 year 99% financing credit deals at zero % everyone is talking about. If we all were so smart we'd have this growing economic collapse under control in a jiffy.

 

/sarc off

 

new game's picture

put it in storage and wait 20 years with less than 10000 miles, then lets talk price terms and conditions of sale. yea, might be better than gold, plus i can droll on it, ha...

Wahooo's picture

And when you get to year 8, you can refinance it.

Iam_Silverman's picture

"Uh, it's 707"

Yeah, but that's before you add the Flowmaster, K&N and Royal Purple Stickers.  There, I just got you to 750 horsepower.  Just ask any ricer.

I have lost track of the HP gain from a "Got NOS?" sticker.  Anyone know those new power addition numbers?

E.F. Mutton's picture

"....Well the next thing you know, ol' Jed's a thousand-aire..."

stant's picture

"He said we get paid in a new kind of dalla, what was that granny?" "he said devalued electronic Dallas Jed"

stant's picture

" man be a dam fool to leave all this"

Bangin7GramRocks's picture

"Freezing" at levels that are overflowing every storage tank in the world ought to be seen as bullish news of course. Everything is awesome!

the not so mighty maximiza's picture

Soaring like a black swan today

Proaurum's picture

Saudis are being set up as the bad guys here. Supporting ISIS, bankrupting US oil, invading Syria. Watch out for regime change coming there soon. To be fair to them, they are making it very easy for everyone to see them as the bad guys and to set themselves up as the next Saddam/Gaddafi/Morsi.

Then wait till this extends from the border regions to the heart of the oil producing regions and Wall Street will have its $300 oil!

Panic Mode's picture

Freeze my arse. They will sell the oil through backdoors. No one is voluntary to have less income.

the not so mighty maximiza's picture

yeap they are going to pump it like a cheap hooker

Proaurum's picture

They both need cashflow to finance expensive wars, amongst other things.

new game's picture

no honor amoungt thieves...

MSimon's picture

Russian opinion of the deal

 

Russia and Saudi Arabia agree to freeze oil production output

https://www.rt.com/business/332583-russia-saudi-arabia-oil/

Bernoulli's picture

SAUDI OIL MINISTER SAYS AGREED TO FREEZE OIL PRODUCTION
OIL PRODUCTION FREEZE CONTINGENT ON OTHERS FOLLOWING: QATAR

So what they are saying is "we will keep the output at record highs. If others increase, we will further increase, too"?

That doesn't sound like the prices will come up anytime soon...

Long swimming pools

Proaurum's picture

Damn, gold up again, and I was waiting to buy the dip!

VinceFostersGhost's picture

 

 

Molly geez.....they were tanking it last night! It was $30 plus down.

 

Clearly there is no honor among thieves.

Gregory Poonsores's picture

Saudi Arabia produced 10.2 million B/D in Jan., the highest January level since 1981, according to historical data from Centre for Global Energy Studies

 

Strange, given they actually produced 10.09 mbd in Jan. Lower than the average of qtrs 2,3 & 4 in 2015. And Saudi production has fallen 6 out of the last 7 months, but I wouldn't want to upset anyone's shorts.

Iam_Silverman's picture

"Saudi production has fallen 6 out of the last 7 months, but I wouldn't want to upset anyone's shorts."

Ahh, you weren't looking at the "seasonally adjusted" numbers, were you?

Lumberjack's picture
Merkel calls for ‘no-fly zone’ in Syria

 

 

Echoing a long-standing call from Turkey to establish a no-fly zone over parts of Syria, Merkel stressed that while it is impossible to negotiate with terrorists from Islamic State (IS, formerly ISIS/ISIL), she said it would be helpful if the “anti-Assad coalition and the Assad-supporters ... come to an agreement.”

Berlin’s rhetoric, which has been aimed at appeasing Turkey for months, goes against NATO policy. The body turned down the no-fly zone proposal as late as last week.

The Alliance's Secretary General, Jens Stoltenberg stressed that NATO will leave the issue of enforcing a potential no-fly zone over Syria to the US anti-IS coalition. Stoltenberg’s reaction last Thursday came after Turkey’s president, Recep Tayyip Erdogan, renewed calls for the establishment of a secure zone in Syria, arguing it was the only way to deal with the influx of migrants and refugees.

Russia, which is leading an effective air campaign against terrorists in Syria, has on numerous occasions warned that creating such a zone will aid only terrorists and divide the war-torn country. While a no-fly zone would ensure that aircraft are not allowed to enter the protected air space, it would not, however, prevent the continuation of hostilities on the ground.

Motasaurus's picture

The thing about a "no fly zone" over Syria is that you need to be able to enforce it. Russia already /has/ a no fly zone over Syria. No one is flying there except Russia and Syria. What are the Germans going to do? Shoot down Russian jets?

Lumberjack's picture

Russia is not exactly enforcing a no-fly zone. Coalition aircraft are dropping leaflets, A-10's have made bombing runs and drones are flying. Russia has stated that if their (Russian) forces are threatened, then appropriate actions will be taken with equipment already in place. For some reason this has worked out to the Russian's advantage with many glaring mistakes being made by the coalition.

researchfix's picture

That bitch means a no-fly zone for the Russian operations, reality is not her home anymore.

If she wants a no-fly zone for illegal operators she should call Moscow.

She is so busy now because we have the next cauldron at Aleppo going, shady operators are to protect.

German media said - true or not true - that Russian planes are following the German Tornados.

Since these are absolutely useless, they can only be bait. I guess Russia protects the German pilots from their ´friends and allies´,

who are likely to perform a false flag shoot at them.

nmewn's picture

Print. Fuckers ;-)

lester1's picture

Rumor has it the PPT at the NY Fed has been buying oil futures contracts with unaudited electronic money to prevent the price from collapsing into the teens, then dumping the oil back into the ocean and storing it in hazardous facilities in China.

Lumberjack's picture
Syria: the Final Act Begins

 

http://www.counterpunch.org/2016/02/16/syria-the-final-act-begins/

 

Moscow not Washington is calling the shots in the region now, announcing the birth of a multipolar world and marking an astonishing recovery given the parlous state of Russia throughout the 1990s as it struggled to recover from the demise of the Soviet Union. No sooner was the hammer and sickle flag removed from atop the Kremlin than a procession of crazed free marketeers descended from the United States, and elsewhere in the West, to impose neoliberal nostrums in return for an IMF loan that was necessary in order to avert complete economic collapse. The record shows that rather than this collapse being averted it was accelerated by the structural adjustment reforms implemented by Yeltsin and other Russian converts to the new religion.

In Washington at the time ‘end of history’ triumphalism reigned as oh how they laughed. Well, they’re not laughing now.

 

The days when an American president could pick up the phone to Washington’s allies in the Middle East and have his bidding done have passed. The impotence of the Obama administration in the face of these developments has arrived as the culmination of a decade and half of disastrous overreach in Afghanistan and Iraq, leaving US power and credibility severely weakened. Even if the President wished to follow a vigorous and assertive policy towards the region and the conflict in Syria, the cost not just in money but political and public support at home negates it as a serious proposition. In Washington what was once known as the Vietnam Syndrome is now the Iraq Syndrome.

Russian President Vladimir Putin, on the other hand, is acting safe in the knowledge that his popularity and support at home remains rock-solid, with a consistent approval rating of around 80 percent making him the envy his Western counterparts. It probably won’t be until historians a generation from now look at this period and crisis, doing so with the benefit of hindsight and distance, that Putin’s political, tactical, and leadership nous will be properly appreciated. The same goes for his foreign minister, Sergei Lavrov, who’s reduced his US counterpart John Kerry to the role of a hapless apprentice looking on in awe at the finished article.

Proof of this comes with the outcome of the most recent talks on the conflict in Munich. Russia, in the person of Lavrov, arrived with its air campaign proceeding at full tilt, and left again having reached an agreement that it should continue at full tilt. The speed with which the narrative promulgated by the US and its allies has unravelled as a consequence of Russia’s presence is measured in the way they cling on to the fiction of ‘moderate rebels’. The most grievous example involved British Prime Minister David Cameron during last year’s Commons debate on British participation in the conflict. His claim there were 70,000 of these moderates in Syria, just waiting to install a nice and cuddly liberal democracy in Damascus the morning after Assad is forced out, met with howls of laughter everywhere apart from Syria, where Cameron’s ‘moderates’ have turned a large swathe of the country into a living hell.

It bears emphasizing: the only moderates fighting in Syria are the troops of the Syrian Arab Army, made up of Sunni, Shia, Alawite, Druze and Christians. They and their allies comprise the forces of non-sectarianism in the country and the region, engaged in a pitiless conflict against the most reactionary and retrograde current of extremism the world has seen since Pol Pot and the Khmer Rouge were rampaging across Cambodia.

For Saudi Arabia and Turkey talking tough is one thing, backing it up is a quite another. The world already got the measure of Erdogan after a Turkish jet shot down a Russian bomber a few months ago. The Turkish president went scurrying straight to his NATO allies requesting that Article 5 of its treaty, committing its members to the collective defence of each when under threat, be invoked. His request was denied by Obama and, no wonder, given he’s had reason to doubt Erdogan’s credentials as an ally since. Turkey’s attempt to paint the Kurds of the YPG as a terrorist threat to rank with ISIS is not going down well in Washington, where the Kurds are rightly viewed as an invaluable ground component of the anti-ISIS struggle and have been receiving US and Russian air support with this in mind.

With Russia’s military presence in and around Syria entrenched, and with the US increasingly disenchanted with Erdogan’s Janus-faced role in the conflict in Syria, not to mention the bellicosity of its Saudi client over Iran and a human rights record that makes every utterance in support for the kingdom a howl of hypocrisy, we are at the absolute tipping point when it comes not only to Syria’s future but the future of the region. The stakes involved leave no doubt that the mounting threat of a Saudi-led invasion of Syria speeds the hour when Iran and Russia commit their own ground troops in significant number.

The second act of the conflict in Syria is drawing to a close. The third and final act is about to begin.

Lumberjack's picture

I see the election shenanigans here mimic what Erdogan did last november. Kind of reminds me of Hillary and the DNC (and GOP).

 

Erdogan Gang Heist - Election Fraud in Turkey Nov 1

http://www.opednews.com/articles/Erdogan-Gang-Heist--Elect-by-Michael-Co...

 

The ErdoÄ?an gang, also known as the AK Party (AKP), stole the snap elections held in Turkey on Sunday, November 1. (Image: thierry ehrmann)

This was a make-or-break election for Turkish President Recep ErdoÄ?an. Any outcome other than single party rule by the AKP threatened ErdoÄ?an with prosecution for well-documented financial crimes and support for terrorists in Syria. Against the record of recent elections and against public opinion polling results, AKP increased it vote share over the June elections just enough to assure an absolute majority in parliament. The would-be Sultan was saved, at least for now.

The implications for Turkey are profound. The lessons learned about the decline of the rulers and elites in Europe and the United States are of great interest as well.

To believe that ErdoÄ?an's AKP won the election, you need to believe the following.

  • AKP party support increased 16% above the public opinion poll predictions and 20% over the June general election total.

From June 7 through the last polls before the November elections, AKP public polling showed the AKP at a around 42% of the electorate. Nothing material happened in the last two weeks of the campaign to cause a rallying to AKP, yet the party support increased 16% above the poll predictions and 20% over the June general election total.

The two-week period to the election when public polling is legally banned should have held the AKP at its high point of 42% or degraded its support somewhat. A clear majority of Turkish citizens oppose Turkey's support for Syrian rebels, including ISIS. Two public events were bombed killing nearly 200 HDP (Kurdish party) demonstrators. Both of these bombings were linked to ISIS, the worst of the Syrian rebel factions supported by the ErdoÄ?an gang. How can a party gain 20% in two weeks when its policies, support for Syrian rebels, came home in the form of terrorist bombings?

MSimon's picture

How can a party gain 20% in two weeks when its policies, support for Syrian rebels, came home in the form of terrorist bombings?

 

In Turkey - killing Kurds is not terrorism.

 

OTOH Russia. Israel. And the US support the Kurds. Here is a bit on Russian support:

http://www.euractiv.com/section/europe-s-east/opinion/why-a-pro-kurdish-...

 

Russia and Israel are working on a Free Trade agmt. - The fleet is breaking up.

 

==================

 

Obama told Israel, "FY. Where are you going to go?"

 

I believe Israel has given its answer.

Moe Howard's picture

I suggest giving out those Flintstones drinking glasses with every fill up at the pump again.

This will cause demand to skyrocket.

Thorny Xi's picture

You know you have problems when the elites who supposedly have it all planned out decide so elites are more elite than others.

One And Only's picture

"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"

Yes you meet decreasing demand by increasing supply thus lowering significant price gyrations.

Someone is trying to put someone out of business and to me it's a re-play of the 1980's where Saudi Arabia flooded the market and bankrupted the Soviet Union leading to a cozy relationship with the US. Shale is an unfortunate casualty of war and one Obama and libs aren't fond of anyway.

Herdee's picture

The problem is that at the height of oil investment in the last half of 2014 that money is bringing on record production right now and it isn't stopping as everyone is going full out.They're all in need of money to support their war spending.

8th Estate's picture

Saudis to Iran "If you agree to not START, we'll agree to not STOP. But if you start pumping, we'll do even more"

Iran to Saudis - "Get f***ed"

 

Mainstream media - "Saudis agree to freeze output!"

Paul Kersey's picture

China's year over year exports are down 6.6%, and its YOY imports are down 14.4%.  India's YOY exports of goods plunged 13.6%.  In Japan,  year over year exports are down 8%. while imports plunged 18%.  Exports of all U.S. goods fell 4.8% in 2015, “to mark the largest decline since the final year of the Great Recession”.  In other words, it ain't just oil that's not in high demand.

cluelessminion's picture

I'm a poor ignorant black person who's too old to care and even I can see that there is a huge fix in.

 

1984 is now guys.  Every thing is fixed and *EVERYONE"  of the players is in on it and and doing what they're told.  Thought I'd never see Russia actually play along; guess they're part of the team too.  I don't understand any of this; there was a day not too many years ago when there was a cartel that kept prices high (OPEC).  

 

Why are these oil producing countries now trying to keep prices at record lows?]

Because that's what the people who control things told them to do.  

cluelessminion's picture

I'm a poor ignorant black person who's too old to care and even I can see that there is a huge fix in.

 

1984 is now guys.  Every thing is fixed and *EVERYONE"  of the players is in on it and and doing what they're told.  Thought I'd never see Russia actually play along; guess they're part of the team too.  I don't understand any of this; there was a day not too many years ago when there was a cartel that kept prices high (OPEC).  

 

Why are these oil producing countries now trying to keep prices at record lows?]

Because that's what the people who control things told them to do.