Oil Prices Drops Lower On Tuesday

Crude-oil prices turned lower Tuesday morning, as investors decided that talk of an agreement to freeze oil output wasn’t sufficient to alleviate a global supply glut that has dogged the market.

On the New York Mercantile Exchange, West Texas Intermediate crude for March deliveryCLH6, -1.97%  fell 51 cents, or 1.7%, to $28.95 a barrel, after trading as high as $31.53 a barrel in electronic.

The prospects of an outright cut of production by some of the largest oil producers in the world fueled an initial run-up in crude prices, but the reality of a so-called freeze of output from Saudi Arabia and Russia—considered the top two producers of oil in the world—was considered too small a step to help rid the world of record oil supplies.

“Until you can get the producers to start talking about production cuts, you’re still looking at oversupply,” said Robbie Fraser commodity analyst at Schneider Electric.

At a closely watched meeting of energy ministers in Doha on Tuesday, oil producers, including Saudi Arabia, Russia, Qatar and Venezuela, agreed to freeze output at January levels in a bid to stabilize the volatile oil market.

The deal is contingent on other major producers following suit, Dow Jones Newswires reported.April Brent crude LCOJ6, -3.68%  on London’s ICE Futures exchange also fell 49 cents, or 1.5%, to $32.93 a barrel, after hitting a high of 35.55 a barrel earlier.“Agreeing to a production freeze when [these countries] have been producing oil at record levels, well beyond their quotas isn’t very bullish [for oil]…We’re still well overproducing,” said Tariq Zahir, managing member of investment-advisory firm Tyche Capital Advisors.

Indeed, OPEC’s latest report shows that in 2015, Russia’s oil production reached a record high of 10.8 million barrels a day. OPEC’s output also rose by 280,000 barrels a day to 32.63 million barrels a day, according to the International Energy Agency, which attributed the additional supplies to Iran, Saudi Arabia and Iraq.

Despite some traders and investors casting a skeptics eye on the production freeze talk, some said the pact still marked a significant departure for Saudi Arabia and the Organization of the Petroleum Exporting Countries, with countries like Iraq, which had earlier talked about increasing its output, marking a 180-degree turn from earlier comments, said Phil Flynn, senior market analyst at Price Futures Group.

“There have been no production caps, but any type of restraint from these players is an about-face from what they’ve said previously,” Flynn. “A production freeze is better than what we had before, which was nothing,” he said.

Flynn said some of the major oil producers and OPEC members may be “nearing their point of pain.” Meaning that there are signs that a protracted deflation of oil prices have hurt revenues of some of the biggest oil-rich nations