Last week we talked at great length about a proposed production “freeze” and what that would accomplish for the market as a whole. Well, you can throw that notion out the window. According to Bloomberg, this weekend, Bijan Zanganeh, Iran’s oil minister, announced that Iran would not join the discussion on production freeze until its output hits 4 million barrels per day. Being that it is due to hit just 2 million by the end of March, the March 20th meeting looks unlikely, and it might be at least mid-April until a production freeze of any scope has any traction.
Until now, it had been more than a week since the market reacted to bearish sentiments, however, this news about Iran is too big to sweep under the rug. WTI crude is trading down over 4% at $36.78/bbl and refined products as well, both heat and RBOB, are down $.0275/gallon and $.231/gallon respectively. Late last week, Baker Hughes yet again provided data that further shows the impact that lower crude prices have on U.S. oil production. Once again, 12 weeks in a row to be exact, the number of U.S. oil rigs was down. We are currently at the lowest level since 1949.
With this bearish news coming after almost a 2-week rally in the market where prices of crude finally pushed over $40/bbl and things were looking up, there is yet something positive to look at. With crude prices at record lows for such a long period of time, U.S. shale producers have pushed longer and harder to find ways to increase production while keeping operating costs low. In doing so, companies such as Pioneer Natural Resources, Hess Corp, EOG Resources, Whiting Petroleum Corp, and Devon Energy Corp have all had significant breakthroughs in the way they drill and specifically the ways they crack rocks. "Even in 2016 we're changing what we're doing in terms of optimization, we're pushing the limits," Pioneer's COO, Tim Dove, said.