GLUT remains, fundamentals have not altered, yet crude oil markets are firming up. Why? Indeed a number of factors, from a declining US output to a weakening dollar are impacting the markets, yet the biggest apparent break from the recent past is that Russia - finally – seems ready to be part of any possible output arrangement deal. This is the biggest transition. A Moscow that was belligerently insisting, it could not control or put brakes on its output – due to technical reasons – is finally ready to participate in any such deal. And the impact is significant. Despite the fact that Iran continues to insist on not being part of any such deal until it attains pre-sanctions output levels, markets are firming up. Crude market prices have risen in recent days – regardless of the number of ifs. The glut is still there. And producers are currently talking of just freezing – and indeed – not – cutting output. Yet, markets have climbed a considerable distance from the February lows. The Russian factor is definitely working! Oil is in with a fifth weekly gain, the longest run since May last year. Prices have surged more than 50 percent from 12-year lows since the idea of a production freeze was floated. The very possibility of Russia and Saudi Arabia working together to stabilize the markets, boosted Brent up from around $27 a barrel and US crude from around $26. The recent rally too is being attributed to reports that OPEC and non-OPEC producers including the top two exporters, Saudi Arabia and Russia, are to hold talks on April 17 in Qatar over a plan to freeze output, increasing the likelihood of the first global supply deal in 15 years. And indeed the impact of other factors could not be understated. Stronger demand and lowering US shale oil output have also contributed to the current rally, one can't deny. Markets took note of the fact that the US production dropped by 10,000 barrels per day (bpd) to 9.07 million bpd last, the EIA reported. US crude inventories last week though climbed to its fifth straight week of record highs, yet by just 1.3 million barrels, a much smaller build than forecast, EIA confirmed. Gasoline demand in the US too rose 6.4 percent over the past four weeks from a year ago. A weakening dollar too has contributed to the rally. All this is contributing to bullish sentiments. And analysts are weighing these in too. WTI may rise to $47 by June, supported by the oil producers' freeze, low interest rates and falling US shale output, Bank of America Merrill Lynch said in a note to clients Friday. The price however, may subsequently recover to $39 by September on seasonal demand swings. Yet the fact remains the major factor pushing oil prices to 2016 highs, with US crude surging 5 percent to pierce through the $40 barrier, remained the optimism in the markets that major producers, Russia included, would strike an output freeze deal next month amid rising gasoline demand in the United States. Not all major stakeholders are in the camp - yet. The biggest hold up is indeed from Iran. Yet the tentative April 17 meeting following a preliminary deal in February between Saudi Arabia, Qatar and Venezuela, plus non-OPEC Russia, to freeze output at January levels has buoyed the market sentiments. Confirming the meeting, the Qatari Energy Minister Mohammed Bin Saleh Al-Sada said on Wednesday around 15 producers in and outside the Organization of the Petroleum Exporting Countries, accounting for about 73 percent of global oil output, supported the initiative. The freeze however, would only be the first step in a long process, as underlined by Oil Minister Naimi too in recent weeks. And the freeze should not be confused with a cut. It is a status quo — holding production constant with the expectation that rising demand, plus production declines in some countries will help bring the market back into balance, analysts are underlining. Yet the fact remains that the very talk of a freeze has pushed the bears - somewhat to the sidelines. Since February 16, market sentiments have been partially shaped by reports of the proposal by Russia, Saudi Arabia, Venezuela, and Qatar to "freeze production" at January levels. The proposal has been interpreted optimistically by the markets as a sign of growing cooperation among major producers, generating expectations that with Russia's help, oil markets could be stabilized. "The talk of a freeze has certainly shifted sentiment in the oil market away from abject pessimism, and it could end up being the bridge to stabilization. But it leaves the big questions." Since 2014, the Gulf producers have been underlining, they would only agree to some output deal if all exporters sign up. On the other hand, Russia has been insisting, it does not have the liberty to put brakes on its production. Technically it may not be possible. But now Russia, under budgetary pressure, is on board, agreeing to freeze output at the January 2016 level. And this has altered the overall landscape. Markets sentiments are thus comparatively bullish now, despite the fact that fundamentals continue to be weak. Russia's January production of 10.88 million bpd was already a post Soviet record high. And this means that Russia could freeze production but still increase exports of crude oil relative to oil products by manipulating its tax regime. On the hand, Saudi Arabia's output was relatively stable in January at near record levels of 10.23 million barrels per day. A monthly production report from the Organization of the Petroleum Exporting Countries released last Monday showed the group's output declined by less than 200,000 barrels in February. Much of that came from pipeline disruptions in Nigeria and Iraq, some of which have already been repaired. Would the rally last and for long – remains thus a big if. Not all seem convinced - yet. "Any such deal (to freeze output) would still not be a game changer. It would really just maintain the excess supply that is now in place," Thomas Pugh of Capital Economics said in a note. Long-term crude market scenario continues to be cloudy, until market fundamentals change. And until then, it's a bumpy, volatile ride – one could say with some degree of confidence and conviction.
