The oil sector continued to face the pressure of excess supply after reports indicated record crude stockpiles in the United States. On top of that, Saudi Arabia took a decision not to reduce its oil production. Both pieces of news were enough for oil to trade below $33 a barrel on Wednesday. The hopes of a production freeze at January levels also appeared to have dimmed. Nevertheless, oil began trading higher, and is now unchanged since yesterday.
Production Cuts Will Not Happen
The most significant concern was the comments made by Saudi Arabia Oil Minister, Ali al-Naimi, thus dragging down market sentiment. He said that there would not be any slashing of oil production though some countries might join the chorus of freezing oil output at January levels. Such a commitment would be insignificant given that production levels are already at maximum.
However, al-Naimi’s counterpart in Venezuela indicated that all oil producing nations who back the idea of freezing output would be planning to meet during the middle of next month.
United States WTI crude is no unchanged at $31.87 while Brent is higher by over 2% to just under $34 per barrel. The American Petroleum Institute (API) had earlier disclosed that crude inventories witnessed a 7.1 million barrel growth over the preceding week. That exceeded the estimations of a 3.4 million barrel increase.
Diplomatic Activity Stepped Up
Oil producers, both OPEC and non-OPEC, were left with no alternatives but to step up their diplomatic activities as the global oil price slump could not be stopped. Before oil started falling in late 2014, the peak price was at $114 per barrel. The weak oil price also increased the budget deficit of oil producing countries in the Middle East.
Russia, Venezuela, Qatar, and Saudi Arabia said last week that they were ready to freeze output at January levels. However, Saudi Arabia indicated that they would do so only if other big oil producers also make a similar commitment. Their idea is not getting wider agreement due to Iran, which indicated that it would boost its output to pre-sanctions levels as it was affected by sanctions over the last several years.