OPEC’s plan to drown the world in oil, drive back competition and stress some of its competitors to death did not come without consequences.

Prices are so low that even low-cost producers are ready to stop production growth. But Saudi Arabia, Russia, Venezuela, Qatar and other overproducing oil countries want to freeze production growth at the highest levels in nearly a decade.

“For all the posturing, this is a clear indication that low prices are creating significant pain across the producing world,” said Vikas Dwivedi, an analyst for Macquarie Capital (USA) Inc.

The countries said they reached an accord Feb. 16 to maintain average crude oil production in 2016 at levels realized in January. However, the deal is contingent on a broader agreement among major oil producers and few, if any, expect Iran to agree.

Since OPEC’s meeting in November 2014, much has happened to shape current events.

Sanctions on Iran have been lifted, increasing the country’s power in the OPEC cartel. The drive for market share has helped open the door to U.S. oil exports, and prices have fallen so low that even Saudi Arabia is burning through money.

“By creating an oversupply situation and driving prices lower, they are increasing supply, not reducing it, as production is maximized to offset falling prices,” said Andrew Fletcher, senior vice president for commodity derivatives at KeyBank NA National Association.

This is the opposite of Saudi Arabia’s stated goal to avoid being a swing producer and instead maintain market share by driving marginal producers from the market, all while maintaining and even increasing its own production, Fletcher said.

“Saudi is depleting their cash reserves at a tremendous rate, and for what? What have they achieved? U.S. production has fallen by 400 Mbbl/d to 9.2 MMbbl/d,” he said. “Russian production has actually increased. There are wiser heads within Saudi Arabia who see the folly of the current strategy, look for a change in Saudi leadership which may lead to a more conciliatory policy.”

Fletcher noted that by driving producers out of the market, production will fall. But those reserves will be concentrated in more efficient companies that can weather the downturn, meaning that production will return once prices rise again.

Leadership Vacuum

For now, the kingdom continues to avoid outright cuts in favor of a proposal that keeps its oil faucet one turn away from full blast. The tentative agreement by some OPEC countries and Russia was met with collective apathy on Feb. 16. WTI prices fell on the reports.

Tudor, Pickering, Holt & Co. (TPH) said the market is looking for Saudi/OPEC leadership, “yet outwardly OPEC resembles a state of entropy.”

The silver lining to the $30 cloud could be recognition that Saudi Arabia is not itching to increase supply back to 10.5 MMbbl/d from its current rate of 10.1 MMbbl/d.

“I put little credence to these headlines as it merely perpetuates the status quo,” Fletcher said. “In order for a swift rebound in prices one needs Saudi to cut production.”

As it stands, the OPEC/Russia agreement would create a reduction of as little as 120 Mbbl/d.

Truth Hurts

Saudi Arabia and OPEC’s oversupply strategy seems increasingly like a hand overplayed.

Jeff A. Dietert, head of research for Simmons & Co. International, said the proposal crystallizes a “few grim existential truths.”

Even the lowest cost producers in the world are taking a beating at $30/bbl of oil.

“Russia is enduring monumental distress,” Dietert said.

In January, OPEC’s supply was 32.6 MMbbl/d, representing the highest monthly production level since August 2008, according to the Energy Information Administration. Iran expected to increase supply by an additional 0.5 MMbbl/d over the next few months. Actual OPEC supply could be even higher, at 33.6 MMbbl/d. Russia, for its part, produced 10.9 MMbbl/d in January, a post-Soviet record monthly high.

“OPEC holding production flat would represent a change in trend, as OPEC has steadily increased supply throughout 2014 and 2015,” Dietert said.

But it could lead to changes in Saudi leadership, as the kingdom begins to see the pointlessness of vying for market share at the cost of billions of dollars in depleted treasure.

“The meaningfulness of this agreement lies in the fact that it may mark one of the first coordinated steps by OPEC in a process to assess whether the members of the organization have sustained enough pain emanating from the low price and will reinstall its previously foregone policy of market stability,” Dwivedi said.

Deal Killer

Without some concessions for Iran to grow production to pre-sanction levels, the deal likely dies in Tehran.

“Without agreement from Iran and Iraq, the two countries most likely to increase production going forward, the agreement to freeze output will have little impact, as most market prognosticators are assuming OPEC supply ex-Iran is going to be held flat,” Dietert said.

And he noted that the Syrian conflict and the “intractable enmity between Saudi and Iran” will make fulfilling an effective, enforceable agreement difficult.

The next OPEC meeting is in early June.

“The chance of a coordinated cut is low but increasing as Iranian barrels should be fully in the market at that point,” TPH said.

Still, the attempt to deal with oversupply could be the first step toward future production restraint.

Darren Barbee can be reached at dbarbee@hartenergy.com.