Oil prices remained slightly weaker after a meeting of major exporters ended without a deal to freeze production, but a major sell-off failed to materialise as the market focused on improving fundamentals.
Talks in Doha aimed at achieving the first global oil deal in 15 years broke up late on Sunday after Saudi Arabia toughened its stance and insisted Iran, a fierce regional rival, should be part of any agreement. The move stoked fresh fears of a price war among major producers.
Saudi Arabia and Iran, which is emerging from years of sanctions that hit oil production and exports, are backing opposite sides in Syria’s bloody civil war, and Saudi Arabia has been fighting Iranian-backed forces in Yemen. But the impact of the botched talks – and the apparent politicisation of Saudi oil policy – was offset by the realisation that the market was rebalancing, as low prices forced high-cost production offline, said traders and analysts.
“As crude balances are set to tighten both seasonally and structurally in the coming months, we would – for the time being – think that the Doha failure would not expose the markets to much downside, unless the post-meeting rhetoric does throw oil on the fire,” said JBC Energy, a Vienna-based consultancy.
After falling as much as 7 per cent, Ice June Brent was down just $1, or 2.5 per cent, at $42 a barrel. On the other side of the Atlantic, Nymex May West Texas Intermediate fell more than 7 per cent to $37.61 before recovering to trade down just 1.5 per cent at $39.77. Prices were also supported by a workers' strike in Kuwait that has temporarily reduced output.
“The situation remains extremely fluid, but adding about 250,000 barrels a day of Kuwaiti losses [due to a strike] to the growing list of unplanned outages takes our global estimate to 2.77 mb/d in April, the highest since May 2014,” said analysts at Energy Aspects.
Oil prices have rallied from below $30 a barrel in mid-January to $43 at the end of last week, partly due to the plans for an output freeze led by Qatar, Russia and Saudi Arabia.
While improving supply and demand fundamentals made a formal production freeze less important for oil prices than they would have been two months ago, the failed talks in Doha are still a concern.
Saudi Arabia’s refusal to take part in a deal without Iran’s participation shows how the kingdom’s oil policy is becoming politicised.
“The Doha agreement should have provided a moral rather than a physical support to the market as it would have created less of an environment for speculation about price wars. The failure of the Doha meeting reintroduces those speculations,” said Olivier Jakob of Petromatrix, a Swiss- based consultancy.
– Copyright The Financial Times Limited 2016
