Oil: Investors over-responded to output freeze suggestions - BBH

Research Team at BBH, notes that the investors over-responded to suggestions that Saudi Arabia and Russia may agree to freeze output later this month. 

Key Quotes 

“At its best, the price of Brent was up by more than 5%, but as cooler heads prevailed, the gains were pared to less than 1%.  As we have noted, assuming rational actors that embrace realpolitik values, we should expect output to increase ahead of serious negotiations to freeze production.  And that is exactly what has happened. 

An agreement to refrain from increasing output is also something smaller producers, many of whom are already producing near capacity, can agree to.  They are not giving up anything.   Iran is a different story.  Its output has not returned to pre-embargo levels, in part due to continued obstacles in securing financing from US and European banks.  A freeze on the part of the Saudis without Iran participation would be tantamount to a surrender of market share in a rivalry that extends well beyond oil policy. “