Singapore: Oil prices tumbled on Monday after a meeting by major exporters in Qatar collapsed without an agreement to freeze output as Iran refused to freeze its oil output.
The development will revive oil industry fears that major producers are embarking again on a battle for market share, especially after Riyadh threatened to raise output steeply if no freeze deal were reached.
Saudi Arabia’s Deputy Crown Prince Moha-mmed bin Salman told Bloomberg that the kingdom could quickly raise production and would restrain its output only if Iran agreed to a freeze.
Iran’s oil minister Bijan Zanganeh said on Saturday that Opec and non-Opec should simply accept the reality of Iran’s return to the oil market: “If Iran freezes its oil production... it cannot benefit from the lifting of sanctions.”
Russian oil minister Alexander Novak called the Saudi demand “unreasonable” and said he was disappointed as he had come to Doha under the impression that all sides would sign the deal instead of debating it.
Mr Novak said Russia was not shutting the door on a deal but the government would not restrain output for now. With world’s two biggest oil producers — Saudi Arabia and Russia — hinting at higher output, crude oil price may fall further.
Oil prices, which hit a 12-year low in January by dipping under $30 a barrel, had risen above $40 in recent days, buoyed by the bullish talks surro-unding the Doha summit. Morgan Stanley said the failed deal “underscores the poor state of Opec relations,” adding that “we now see a risk of higher Opec supply.”
Oil prices have fallen by as much as 70 per cent since mid-2014 as producers have pumped one to two million barrels of crude every day in excess of demand, leaving storage tanks around the world filled to the rims with unsold fuel.
Sunday’s meeting in Qatar’s capital Doha had been expected to finalise a deal to freeze output at January levels until October 2016 in an attempt to slow that ballooning oversupply.
"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 Natixis oil analyst Abhishek Deshpande, who added that prices could fall close to $30 per barrel.
Brent crude futures fell almost seven per cent in early trading on Monday before recovering to $40.97 per barrel, still down 2.15 per cent since their last settlement.
Traders said only an oil worker strike in Kuwait had prevented Brent from tumbling below $40 per barrel, while a cut in US drilling down to 2009 levels had prevented steeper falls there. Goldman Sachs said the Doha no-deal could be a “bearish catalyst” for US crude prices, which it forecast would average $35 a barrel in the current quarter.
Analysts said that the failed agreement would also impact the broader economy. “In the near-term, lower oil prices are bound to weigh on investor confidence and could exacerbate financial volatility,” said Frederic Neumann, co-head of Asian economics research at HSBC.
While tumbling oil prices hurt producers, straining the budgets of energy exporters from Russia to Malaysia, they can also benefit consumers. India is one of the biggest beneficiaries of low crude oil price as it depends heavily on imported crude to run the country.
However, analysts suggest the benefit from lower crude oil may tapper off as budget constrains in oil-dependent economies in the Gulf region will affect remittances from its diaspora. This could affect India’s current account balance.
