Crude oil prices are starting the U.S. trading session in positive territory after giving up some ground yesterday. Since the announcement of the potential production freezing deal oil prices are starting to stabilize with the week-to-date level just slightly below last week’s closing level as of this writing. As the deal evolves the market is likely to establish a price floor… at least temporarily.
A meeting is now underway with the OPEC head, Iran, Iraq and Venezuela to discuss the production cap that is currently on the table. Yesterday Iraq said they would freeze their production with Iran suggesting they were not enthused about a cap at this stage of their return to the market. OPEC's president and Venezuela will be trying to convince both Iraq and Iran to sign on to the potential deal.
Most of the reviews of the potential deal from a macro perspective by market analysts were negative with many suggesting that the deal would do nothing to mitigate the current oil glut anytime soon. I agree with that macro view but I also view the deal as a first step for producing countries to at least regain control of the situation. If all of the main players cooperate with the parameters of the deal set forth over the media airwaves over the last twenty four hours it will be a first step that could eventually lead to a cut in production down the road.
If this deal results in a stabilization of prices in the short- to medium-term it could provide enough motivation for the producers to actually trim production so as to result in accelerating global supply and demand returning to a more balanced position prior to when most forecasters are projecting the rebalancing to occur (2017).