A Deal Which Sparks Hope For The Oil Price

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What's going on?

A deal between the world’s two largest producers of oil, Saudi Arabia and Russia, was made to not increase the amount of oil they pump. It’s significant because it’s the first deal aimed at boosting oil prices in many years – but the devil was in details, so it’s not as positive for the oil price as it might seem.

What does this mean?

It’s certainly important that Saudi Arabia and Russia (as well as smaller producers Qatar and Venezuela) were able to come toany agreement. But the reality is that none of these countries were planning on increasing their production anyway. What it does mean is that deal-making is occurring and, perhaps, a deal will be made in the future to actually decrease oil production (which would likely boost the price of oil).

Why should I care?

The bigger picture: Russia has cheated on such deals before. In 2001 and 2008, Russia agreed to cut production but actually just went ahead and increased it while the Saudis cut back. This deal is certainly potentially important, but it does appear to be sitting on somewhat shaky ground.

For the oil price: It was “buy the rumour, sell the news.” That means that as word of this meeting leaked at the end of last week, the oil price jumped 12%. But once the deal was announced, oil actually went down. That’s probably partly because neither Iran nor Iraq were a party to this deal – and those are two countries that are currently adding significant supply to global oil markets.

Originally posted as part of the Finimize daily email.

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