Saudi Arabia's plan to flood the market with an oversupply of oil has backfired.
The attempt was initiated to protect the Saudi market share and force rapidly growing, high cost producers out of the market, mainly those doing business in the US shale boom.
Instead of putting the fire out, the United States (which consistently touts the climate change narrative), increased production, becoming the world’s largest producer and contributing further to the oversupply of oil on the market.
(Has anyone calculated the carbon footprint on that?)
Although the deal is up to, in large part, OPEC producing countries and governments, the Democrats have remained relatively quiet. And there’s a reason for that: business is booming in the United States and they are a country on their way to energy independence. And a shaky oil market reinforces both the environmental stigma attached to the oil and gas industry and the mindset that depending on fossil fuels is unsustainable.
The Obama Administration is comfortable in a world that has accepted the religion of climate change – so why interfere with the narrative?
Here in Canada, it is more of the same from the new Liberal government. The catastrophic job losses in Alberta and collapse of the energy sector set the stage to project talking points on the oil and gas rollercoaster ride that results in Canada’s desperate need fora green future.
The excess of oil on the market led to a price decrease in oil of over 70% since the decision was announced by the Saudi’s in November of 2014, causing recessions, record levels of unemployment and diminishing profit margins across the globe.
And due to the economic losses of the major oil producers, they are ready to make a deal, while hundreds of thousands are out of work and waiting in the food bank line-up.
Here's why this deal won’t work:
Further to an announcement on February 16 calling to freeze oil production, Russia’s energy minister Alexander Novak has now stated that deals between major oil producers, including OPEC and non-OPEC producers, should be solidified by March 1.
The Russian energy minister also stated that those backing the freeze contribute to 75% of the world’s exports.
Countries supporting restricted production also say that they will freeze rates at January levels, which is suggested to take 1.3 million bbl/d off of the market. But freezing production in January won’t help things, since production was already at near record levels.
There is also one country that won’t commit: Iran. Despite chants of “death to America,” Iran’s major human rights violations and hostile form of governing, the US lifted sanctions on the country in January allowing a free pass to increase production and enter the market again.
Iran's Deputy Oil Minister, Rokneddin Javadi, stated that Tehran plans to increase production to 700,000 bbl/d. But Russia’s first deputy energy minister, Alexey Texler, says that even if Iran doesn’t reduce production, the negative effects of oversupply on the market will be removed.
Currently, the supply of oil on the market exceeds demand by 1 million bbl/d and due to this, oil storage capacities are at maximum levels. Add to this another 700,000 bbl/d of Iranian production and nothing will change.
Although Texler appears confident, it is very unlikely that a production freeze will fix the issue of oversupply on the market for a number of reasons, including freezing production levels at record level, increased Iranian production, along with oversupply and overstock of oil.
This concoction of issues -- ones that those countries supporting restricted production seem to be overlooking -- simply will not close the gap between supply and demand.
One can only assume that it will be a long road to global recovery if this is the only plan in the works.