(MENAFN- ProactiveInvestors - N.America)
The 'big freeze' could have been misinterpreted as a seasonal weather adjustment this time of year but the surprise announcement that key energy players were freezing oil production at January levels surprised the market early in the week.
Oil supply in January was robust and the initial reaction by traders was on the positive side.
Having digested the news the oil price closed the week with a bit more optimism.
In early trading on Friday Brent crude was above US$33 with WTI above US$30 a barrel.
The coordinated plan announced in Doha brought key players from Saudi Arabia Russia Venezuela and Qatar together in an attempt to calm the market.
The Saudi Arabian oil minister Ali Al Naimi told reporters "the reason we agreed to a potential freeze of production is simple: it is the beginning of a process which we will assess in the next few months and decide if we need other steps to stabilise and improve the market.' He urged all OPEC members to comply.
With record inventories in the US and a constant flow of additional oil production every month economies were suffering and some action needed to be taken.
In a market often driven by sentiment this week's rise in price was a welcomed shift to the upside.
The United Arab Emirates issued a statement of support for the plan saying 'the freezing of production levels by OPEC members and Russia will have a positive impact in balancing the future demand with the current over-supply.'
The energy Minister Suhail Al-Mazrouei added that he was 'optimistic about the future.' The oil minister from Iraq Adel Abdul Mahdi said that talks would continue to find a 'normal' oil price.
Iran has long maintained that it needs to pump more oil now that sanctions have been lifted in order to help rebuild the economy.
The country's oil minister Bijan Zanganeh said his country was increasing oil production by 500000 barrels a day but offered support for the 'Doha agreement.'
The UAE's energy minister publically suggested that everyone needed to adhere to this agreement in order to restore a sense of balance to the market.
The response from the market was mixed.
Reaching any agreement is a milestone after months of a stalemate but Julian Jessop chief European economist from Capital Economics reaction was lukewarm on the impact saying 'even if OPEC and Russian output can be capped at its January level this would still be exceptionally high.'
Both producers have been pumping at close to maximum levels in recent months and Jessop concludes that 'this might be better than a further increase but it is not the output cuts that some in the markets have been hoping for.'
Speaking in Saudi Arabia this week Bob McNally President of the Rapidan Group was hopeful that this agreement was the beginning of a market rebalancing and said that there's an 'awareness coming that shale can't replace OPEC' and welcomed this move.
A report from Bank of America Merrill Lynch Global Research team suggested that 'the meltdown in oil and rates has wiped out US$3 trillion in energy and financial equity market value' in recent months.
The bank says this was partly what spurred the agreement as countries are feeling the economic pinch. The bank welcomed the move and says that 'the OPEC output freeze coupled with very affordable retail gasoline fuel prices should help push oil back to US$47 by June.'
The market is hoping for stronger economic growth in the second half of the year combined with lower non-OPEC production.
A report from the Organisation for Co-operation and Development downgraded growth to 3 percent from 3.3 percent this week citing sluggish demand and 'fiscal instability risks' in the market.
The wait and see approach in terms of economic growth and a low oil price has been a slow and painful one but this week's action will hopefully be a step in the right direction for energy producers.
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