The decline in oil production will not take place. This news was announced yesterday by the oil minister of Saudi Arabia when he commented on the recent agreement between 4 countries (Russia, Saudi Arabia, Qatar, Venezuela) to freeze oil production at the level of January provided that Iraq and Iran join this agreement. Later, the idea to freeze oil production was supported by some other countries including Iraq, Oman and Qatar. However, Iran refused to reduce oil production. Oil Minister of Iran Bidzhan Zagane said that the idea to reduce oil production was just a joke.

Iran is going to increase oil production to 4.2 billion barrels per day, thus, reaching the volume the country used to have before the sanctions.

The meeting of the oil producing countries in Daha (Qatar) gave hope to the market participants that

If oil production would be maintained at the level of January, production in future could have been reduced to the lower level.

However, yesterday after the comments of the ministers of Saudi Arabia and Iran, “bearish” sentiments have resumed in the market and spot-price of crude oil Brent fell to the level of 33.00 USD per barrel.

At today’s opening session the price continued to decline. Market participants shifted attention to the weekly data on oil and oil products inventories in the USA (17:30 (GMT+2). It is expected that the inventories will reach the level of 3.165 million barrels. On Tuesday API reported that oil inventories had grown by 7.1 million barrels. Therefore the US reserves of oil can reach the new highs in the past 80 years.

In the result of the decline in oil prices by 30% oil companies can face a risk of bankruptcy this year and banks might bear losses due to default of loans issued to the oil companies.

The increasing crisis in the oil market will trigger decline in the shares of the banks and oil and gas sectors of economy. All these will put additional pressure on the stock indices.

Pressure on the oil and gas sector will continue in the medium-term and it can increase investors’ concern about the state of the global economy.

Materials published on this page are provided by LiteForex for informational purposes only and should not be construed as investment advice or advice for the purposes of 2004/39/EC Directive. In addition, these materials have not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the further distribution of investment research.

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