Will Current Oil Prices Force Producers to Freeze Output?

With oil prices still catastrophically low, analysts are predicting an industry wide output freeze in a bid to initiate market stability. Earlier this month the UAE’s energy minister released a statement confirming that production cuts were already underway, with many producers freezing output in an effort to correct prices.

Both Saudi Arabia and Russia (the world’s two largest oil producers) agreed to freeze output at January levels, on the condition that other nations agreed to join them. Should the pact go ahead it will represent the first global oil production agreement in 15 years.

“I believe that the current oil prices are forcing everyone to freeze so I think it is happening as we speak. It doesn’t make any sense for anyone to increase production at the current prices," explained Suhail bin Mohammed Al Mazrouei in an interview.

The long road to recovery

While oil prices aren’t on a consistently downward spiral, they are nowhere near optimal levels. Earlier this month Brent crude was trading at around one third higher than its January low, when prices dropped to a figure not seen since 2003. The market has recovered to some extent, but the freeze has yet to trigger a dramatic price point impact. Al Mazrouei admits that recovery won’t happen overnight, and that patience is a virtue when it comes to seeing measurable results.

"This is all good news towards balancing the market. We just need to be patient. It's not happening in weeks or months. Correcting to a sustainable price will take time. I'm still optimistic that before the end of year we will see a correction," he said.

Not every oil goliath is on board

Once of the major factors preventing a recovery is Iran’s plans to drastically increase production in the wake of lifted international sanctions on the Islamic Republic. Ultimately, this would cancel out efforts from Saudi Arabia and Iran, and keep oil production high.  

Russian Energy Minister Alexander Novak has revealed that official talks between OPEC and other major oil producing countries will take place between March 20 and April 1. Whether or not nations can come to a unanimous agreement to freeze production is yet to be seen.

The oil industry is a multifaceted arena, and relies not just on producers but also refiners, petrochemical plans, downstream facilities and other entities. ‘Control Systems Offer Enhanced Operation and Monitoring Functions for Greater Efficiency and Safety’ explores the industry beyond the initial production process, focussing on the challenges faced by facilities operators.

Image via Flickr Creative Commons. Photo credits: Anders Sandberg