Optimism was high in Doha and across global markets on Sunday – until news broke that the most-awaited meeting of several major crude exporters, aimed at rescuing sinking oil prices, failed to broker any deal.
The gathering of producers – both those part of the Organisation of the Petroleum Exporting Countries (OPEC) and those outside the group – in Qatar’s capital collapsed without reaching an agreement on freezing the output until October 2016 at levels recorded in January, following Saudi Arabia’s insistence that Iran also should sign the deal.
Iran, which did not attend the talks, stressed that it will ramp up production until the country reaches the levels it was at before international sanctions were imposed on Tehran.
In response to the disappointing news coming from the Middle East, benchmark Brent crude futures tumbled by as much as six per cent in early trading on Monday, before recovering to $41.29 per barrel at 05:08 GMT, still down 4.2 per cent since their last settlement.
Crude prices on Friday jumped to the highest level for the year on the hope that a crucial agreement would be reached during the meeting. Prices had fallen more than sixty per cent since June 2014 to as low as $27 a barrel in January due to the widening glut in oil supply.
Analysts had predicted that the Doha initiative will be a repeat of the December OPEC meeting, after which the group’s indecision knocked down oil prices in the following days.
Francisco Blanch, commodity strategist at Bank of America, had said ahead of the Doha meet that “Middle East politics could once again trump oil economics.”
After five hours of fierce debate about the wording of a communique – including between Saudi Arabia and Russia – delegates and ministers announced that no deal had been reached.
“We concluded we all need time to consult further,” Qatar’s energy minister Mohammed Al Sada told reporters. Several OPEC sources said that, if Iran agreed to join the freeze at the next OPEC meeting on June 2, talks with non-OPEC producers could resume.
The failure to reach a global deal could halt the recent recovery in oil prices.
“With no deal today, markets’ confidence in OPEC’s ability to achieve any sensible supply-balancing act is likely to diminish and this is surely bearish for the oil markets, where prices had rallied partly on expectations of a deal,” said Natixis oil analyst Abhishek Deshpande.
“Without a deal, the likelihood of markets balancing is now pushed back to mid-2017. We will see a lot of speculators getting out next week,” said Deshpande, who added that prices could fall to almost close to $30 per barrel.
Amrita Sen of Energy Aspects said oil prices could fall below $40 on Monday in a knee-jerk reaction.
“While today’s lack of a freeze deal has no negative impact on balances – since Iran is really the only country likely to raise output substantially – it has a huge negative impact on sentiment, especially as the deal had been hyped up so much,” she said.
(With inputs from Reuters)