The Saudis blinked. The latest deal — an agreement with Russia to freeze oil output at January levels if they are joined by other large producers — won’t rebalance the oil market immediately and the early surge in prices last week was rather premature. But they blinked and that is all important. The myth of Saudi power is broken.
The real steps necessary to rebalance the market have yet to come. Saudi production must come down. Others may join in the process but an overall cut of 3m barrels a day is now necessary and most of that will have to come from Saudi Arabia. Stocks must be run off. That will take time. Iran must be welcomed back into the market. That process will be slow and even estimates of another 400,000 barrels a day during 2016 now look high. But they will come back and have to be accommodated. The interests of other Opec member states — such as Venezuela and Algeria — must be taken into account. The Saudi’s lack of respect for their fellow producers over the last year has shaken many traditional alliances. The kingdom does not have that many allies. Read more