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Production Freeze: Saudi Arabia and Iran Are Playing Hide and Seek

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Saudi Arabia and Iran

Saudi Arabia and Iran are both playing hide and seek in regards to production freeze talks. Earlier, it was Iran that turned away from the production freeze agreement. This time, Saudi Arabia is making its way out of production freeze talks.

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Why are the countries important?

Saudi Arabia and Iran are both important to production freeze talks. Both countries have the option to expand their production capacities. Neil Atkinson, head of the International Energy Agency’s oil industry and markets division, indicated that production freeze talks are “worthless” as far as crude oil prices (UWTI) are concerned. He pointed out that Saudi Arabia is the only country that can increase its output. Other countries that are willing to participate in the production freeze talks are already operating at maximum capacity. Iran also has the option of bringing back its crude output to the pre-sanction levels of 4 million barrels per day. The above graph shows the Organization of Petroleum Exporting Countries’ surplus crude oil production capacity.

ETFs will be impacted

Energy ETFs such as the S&P Equal Weight Energy ETF (RYE), the S&P Equal Weight Energy ETF (IPW), and the iShares MSCI Global Energy Producers ETF (FILL) take price cues from the above development. Exploration and production companies such as ExxonMobil (XOM), Chevron (CVX), ConocoPhillips (COP), and Anadarko Petroleum (APC) are also impacted by the above development. In the next part, we’ll discuss how Russia’s game plan was shattered by the above development.

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