The Truth About Oil’s “Big Freeze”

With word swirling about Russia and Saudi Arabia agreeing to freeze oil production, the talking heads are up in arms about whether it will make any difference or not.

As usual, the devil will be in the details.

On the table is an accord to keep production at January levels, with most of OPEC probably following Saudi Arabia’s lead.

In the short term, getting Iran onboard is key. Today, meetings took place with Russia, Saudi Arabia, Qatar, and Venezuela on one side of the table, and Iran on the other.

The official goal was to get Iran on board with the production freeze.

But my contacts are telling me a different story…

Oil’s Big Freeze Caused Market Euphoria

The market euphoria that followed the initial announcement of the oil production freeze prompted prices for the benchmark West Texas Intermediate (WTI) crude to rise over 12% on Friday.

However, after the long holiday weekend and some reconsideration, prices declined yesterday.

Today, the level is moving up again with both WTI and London Dated Brent (the other primary global benchmarks) trading at higher levels than we’ve seen in weeks, especially in light of positive comments from Iran on the new oil production freeze.

Now Iran, which at least in the short term will be key to any further deal on oil production, has as its immediate objective the attainment of the production (and export) levels it had prior the sanctions.

Yet, as you’ve seen before here in Oil & Energy Investor, the declining condition of Iranian fields and infrastructure will make it difficult for the NIOC to remain at pre-sanction levels. Iran’s full return to the international market will take longer than anybody in Tehran wants to admit publicly.

What’s more, my contacts at the National Iranian Oil Co. (NIOC) express considerable frustration over Iran’s official stance…

Internal Conflicts Make for Bad Iranian Policy

You see, conflicts over how to approach coordinating oil production with the outside world continue within Iran.