By Isaac Cohen*
As a result of the agreement to freeze production at January levels, between Saudi Arabia and Russia the two biggest producers and others, oil prices may have bottomed out, climbing from $27 three weeks ago, to almost $40 per barrel this week. However, it is still premature to call this a trend.
Besides the agreement between the major producers, a decrease in oil and gas production in the United States, particularly from shale, has also contributed to the price increase. In February, US oil production reached 9.1 million barrels per day (bpd) and the International Energy Agency, in Paris, forecast it will decline by almost 530,000 bpd throughout this year. This production cut back is confirmed by the number of oil rigs operating in the United States, which declined last week to 392, the lowest number in five years.
One reason for not yet calling the price increase a trend is because, according to the Energy Information Administration, crude inventories in the United States are at their highest level in almost 80 years. Additionally, as sanctions have been lifted, it is still unknown if Iran will join the production freeze agreement. Therefore, there is expectation ahead of the next meeting between the major producers, scheduled for March 20 in Moscow, “to fine-tune collaborative strategies.”
*International analyst and consultant. Commentator on economic and financial issues for CNN en Español TV and radio. Former Director, UNECLAC.