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In sharp contrast to recent months, oil prices were actually up this morning. That's because Saudi Arabia and Russia, the world's two largest producers, are in talks about ways to cut production. That increase in oil prices didn't last very long. When details of the talks were revealed, prices dropped once again. NPR's John Ydstie has more.
JOHN YDSTIE, BYLINE: The proposal that came out of talks between Saudi Arabia and Russia, along with Venezuela and Qatar, was that they would all freeze their production at current levels, but only if Iraq and Iran agreed to do the same. Dan Katzenberg, a senior oil analyst at Baird and Company, says for investors hoping for a decline in oil output, that was disappointing. And that's partly because both Saudi Arabia and Russia are producing at near record levels.
DAN KATZENBERG: Well, how we read this is that we have the two largest producers opting not to take any action today. So the reality that we are in is that the market needs a supply reduction, not a freeze at current levels.
YDSTIE: Professor Jason Bordoff, director of the Center for Global Energy Policy at Columbia University, says the offer's even weaker when you consider the caveat - that it will only happen if Iran agrees to freeze its production.
JASON BORDOFF: And Iran is trying to rapidly ramp up its oil production after the sanctions were lifted so it has little incentive to agree to reduce or freeze production.
YDSTIE: Iran has said it plans to ramp up its production by about one million barrels a day over the next year. That would bring its output close to pre-sanction levels. But despite the immediate disappointment, both Katzenberg and Bordoff say the news that OPEC members and Russia are discussing a way to limit production is a good sign. Again, Dan Katzenberg.
KATZENBERG: The obvious thing here is that you have Russia and the Saudis agreeing potentially to work together, and that's a very important thing, especially when you consider that they are rivals in the Syrian civil war right now.
YDSTIE: But both Bordoff and Katzenberg say this is only a first step. At a minimum, Bordoff says, the Saudis won't cut unless Iran slows its return to full production. Dan Katzenberg says Iran might ultimately agree to that but only because it may not be able to reach the one million barrel a day goal by the end of the year.
KATZENBERG: That is the big unknown.
YDSTIE: And it won't become a known until later this year. Meanwhile, some smaller OPEC countries are in dire economic straits, says Bordoff. In fact, Venezuela's economy is at risk of collapse.
BORDOFF: Hyperinflation, shortages of basic foodstuffs, toilet paper and day-to-day necessities on supermarket shelves - so anything that can help get the price up, the country is desperate for.
YDSTIE: That's why Venezuela is putting as much pressure as it can on Saudi Arabia to make a deal to cut supply. John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.
