OPEC AND RUSSIA AGREE TO FREEZE PRODUCTION AT JANUARY LEVELS

While the headline sounds positive, it remains be seen if production levels will be frozen at Janaury levels, if at all.

This is because the "freeze" is subject to compliance by other OPEC members, which immediately put this to doubt as Iran has vehemently stated that it will not halt its plans to increase production.

And for wall Street to adopt an optimistic view that production cuts could happen is unrealistic given the following facts:

1) Iran's stance that it will not cut production nor halt its plans to increase production

2) OPEC's price war with US shale producers has resulted in many member countries liquidating their sovereign wealth funds to finance the shortfall in their nations' budget. To have cut production is akin to handling the any potential price increase to the US shale oil producers on a platter. Now, who would do such a thing after such unbearable costs to the nation, especially since non of the US shale oil producers have indicated that they too will cut production?

When all else look so gloomy, it is not surprising that investors often hold hopes for promising outcomes. These outcomes sometime do not make much sense given the fundamentals, geo-political climate and demand. As such they often find themselves on the wrong end of the stick.

I remain bearish on US oil shale oil companies. Many are already in distress and bankruptcies could erupt in the coming months. Ultimately, US financials will also bear the brunt. We are not far from another unraveling in the financial markets.