Why Saudi Arabia’s oil output freeze won’t boost prices

Oil crash: Winners vs. losers

If you are waiting for oil prices to rise because of Tuesday’s deal between Saudi Arabia and Russia to freeze production, don’t hold your breath.

Oil ministers from Saudi Arabia and Russia agreed to keep production at January’s levels, as long as other major producers do the same.

They touted the deal as a big step towards tackling the oil supply glut, but it failed to please the market. U.S. crude futures dropped back below $30 per barrel by the end of the day.

That’s because production was near record highs in January. Keeping it at that level will mop up little of the excess.

The world is awash with oil. The International Energy Agency expects oversupply of around 1.5 million barrels a day in the first half of 2016.

To ease the pressure on prices, major oil producers would have to commit to slashing production big time. And there is no sign of that happening.

Supplies from OPEC in January stood nearly 1.7 million barrels a day higher compared to last year, according to data from the International Energy Agency.

Freed from sanctions, Iran ramped up its production to nearly 3 million barrels a day in January, up 80,000 over December. Iraqi output reached a record high of 4.35 million barrels a day, and shipments from Saudi Arabia have also increased, to 10.2 million barrels a day.

Related: Iran’s markets are up 25% this year

The agreement between the Saudis and Russia comes with a caveat that it will only go through if other major producers agree to join in. Officials from Iraq and Venezuela are meeting in Iran on Wednesday to discuss the idea.

But analysts are skeptical about Iran’s willingness to freeze production at a time when the country is eager to ramp up output and reclaim its share of the world’s oil market.

Iran’s oil minister previously told CNNMoney the country would not cede ground to other producers. Government sources in Iran said the position has not changed.

“Iran has continued to comment that it is committed to growing production and regaining market share, suggesting that any deal involving Iran would likely need to allow for some production growth,” analysts at Goldman Sachs wrote in a note to investors on Wednesday.

— CNNMoney’s emerging markets editor John Defterios contributed to this article

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