A big meeting between Saudi Arabia, Russia, Venezuela and Qatar is leading to the big freeze! While word of the meeting spurred speculation that a production cut might be announced, what happened instead is the four oil producers announced they would freeze output at January levels. Of course many believe that Russia’s January oil production hit a post-Soviet high in January, reaching an average of 10.88 million barrels per day and can’t produce much more oil anyway. The Saudis are close to being tapped out as well but despite that fact, do not underestimate the significance of this step.

Just a few weeks ago there was a lot of skepticism that you could even get Russia and Saudi Arabia to talk, let alone agree to freeze production. Now it is probably the first move to at least restrain production and set the stage for further talks to implement a production cut.

Last week we heard from the United Arab Emirates that they were open to cuts. Even Iran said they were open to talking but we all know the big elephant in the room was Saudi Arabia. Now they are showing signs that they are willing to show some restraint and put further talks of cuts on the table.

But for now Qatari energy minister Mohammad bin Saleh al-Sada said that the step would help to stabilize the international oil market. Stabilization of oil is being welcomed by other markets. We saw a big bounce in China’s stock-market. U.S. Stocks look like they will start out strong this week too.

Of course the move may be too late for a lot of other producers. On Friday Baker Hughes reported that the U.S. oil rig count is down 28 to 439 rigs which was the 8th consecutive decline for oil rigs. They also showed natural gas rigs down 2 to a record low of 102.

While OPEC is freezing, U.S. oil producers are cutting whether they want to or not. We feel that this is the first move to reign in production. This has changed the bearish narrative a bit. Now there is at least a chance that we will see a cut and that should give traders pause before they press the short side!

Thanks,
Phil Flynn

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