London, February 19

The oil market was gripped this week by an output freeze deal between world’s top two producers Saudi Arabia and Russia.

Prices initially rebounded on Tuesday, before hitting reverse as traders assessed the conditional agreement between Saudi Arabia and Russia and two other producers to limit output.

In a bid to stabilise an oversupplied market, Russia and OPEC members Saudi Arabia, Venezuela and Qatar announced on Tuesday that they had reached a preliminary deal to freeze output at January levels, provided that other major producers followed suit.

The news sparked hopes the market would stabilise after sinking to near 13-year lows last week on the stubborn supply glut — but disappointed those looking for an output cut.

“It has been another tumultuous week for oil markets this week after ... news flow has pointed to a potential resolution to the ongoing supply glut,” said James Hughes at traders GKFX.

“Undoubtedly the biggest story of the week was the news that Saudi Arabia and Russia had agreed to freeze production ... however the obvious problem with that is that we are already at record highs for oil production. The news saw oil prices jump higher, before dropping on the prospect that Iran and Iraq were not on board.”

Saudi Oil Minister Ali al-Naimi said Tuesday’s decision was ‘beginning of a process which we will assess in next few months and decide whether we need other steps’.

Iran meanwhile entered talks with other producers to address low prices — but stopped short of committing to any production cutbacks. Iran, which has been pumping oil at maximum levels since a deal with western powers ending sanctions, said in response to freeze announcement that ‘there is room for discussion’ but Oil Minister Bijan Zanganeh added Iran ‘won’t relinquish’ market share.

The 13-nation OPEC oil cartel, of which Saudi Arabia, Venezuela, Qatar and Iran are members, has refrained from cutting output as it looks to maintain market share in face of competition from US shale oil producers. Russia — which is not an OPEC member — has seen its recession-hit economy damaged further by the slump in oil.

Oil prices also ran out of steam on Thursday and today after US Department of Energy said US commercial crude inventories rallied 2.1 million barrels last week to reach the highest level in over eight decades.