Oil producing nations to meet in Doha to discuss production freeze

Scouring through social media this morning my eye got a glance of an interesting chart that caught my attention with much thought over the developing situation happening in OPEC after selected members announced an output freeze. The chart in question is that of the Oil Volatility Index (OVX) spanning back to July 2014 when the rout began with an evident uptrend in place that surprisingly took a crucial step in defining a bottom for the commodity.

Although 2016 didn't start off on the best footing for oil we've seen a subsequent bounce following a number of developments happening from both OPEC and US shale gas producers. The responsiveness of US producers to a declining oil price can be seen in a stronger trend downwards in the number of wells in operation. A significant part of the uncertainty stirred up last year surrounded the ability of firms to service the debt they had accumulated during their expansionary phase years earlier.

This risk remains on the table even though with every dollar the price inches upward deep sighs of relief can be heard, troubling signs that renewed oil strength might encourage producers with stagnate wells to once again begin turning on their taps negating any positiveness found in this current rally.

Then you have to consider the ructions happening inside OPEC concerning members acceptance to bring about a production freeze that's been agreed upon so far by Saudi Arabia, Venezuela, Qatar and non member Russia in an effort to curb quantities being delivered to market. However there's been heavy disinterest in partaking in this endeavour from Iran due to sanctions being recently uplifted added to the already fractiousness relationship between Tehran and Riyadh.

In saying this we cannot neglect to note the significance of this turning point of volatility in oil price, it's something that might suggest that the developments around these issues are starting to produce positive sentiments from market participants who feel a little more confident than what they were three months ago.

Its Post-2014 Up Trendline pic.twitter.com/C0ogQHw8W4

— Dana Lyons (@JLyonsFundMgmt) March 16, 2016

News of a meeting between major oil producers from both ends of the spectrum next month helped spur the market on indicating Saudi's preparedness to sidestep Iran in its quest to see higher oil prices. Such a meeting if concluded successfully would all but seal the fate for oil and there's a desperate need from both sides to see some sort of stability.

By including Non-OPEC members Saudi Arabia has conceding to the fact that oil competitors are here to stay for the long term, a scenario it had refused to envision by implicitly driving up oil output to eliminate these high cost producers. This plan has resulted in the Arab oil empire haemorrhaging extensive government leverage only to see it fail miserably.

For US shale gas producer this might be the lifeline they were looking for and would do well to see some conclusive deal reached if they're wanting to succeed over the long term. They would need to stress urgency in the execution of such a deal as time is running out for them as cash flows tightening further and creditors coming knocking at the door.

Overall I think the world consumer may have not participated as much in this current price decline as one would've expected due to the strong dollar amongst all the world's currencies. It can also be said that the effects of lower oil prices on US consumers haven't economic growth either with many begging the question, what will happen next?

OPEC, non-OPEC oil producers plan to hold their next meeting to discuss output freeze pact on April 17 in the Qatari capital Doha- sources

— Rania El Gamal (@Rania_ElGamal) March 16, 2016