Oil prices dropped once again Monday morning, after the world’s largest producers failed Sunday at a conference in Doha to agree on a production freeze.
Georgi Kantchev and Jenny W. Hsu of The Wall Street Journal had the day’s news:
Oil prices slid on Monday after key producers failed to negotiate a curb on their output, fueling concerns that this could hit the recent recovery in the crude market.
Sunday’s failed attempt to implement a production freeze between Russia and members of the Organization of the Petroleum Exporting Countries in Doha threatened to undo a nascent rally that has lifted oil more than 50% from its February lows.
On Monday, analysts debated whether declines in production from the U.S. and other producers will continue to support the market or whether the weekend’s failed deal will see more oil unlocked from OPEC nations like Saudi Arabia.
Brent crude, the global oil benchmark, fell 2.5% to $42.01 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 3.2% at $39.05 a barrel.
Most analysts appeared to believe that declines in the U.S. and other big producers mean that the impact of failure in Doha might be limited.
Both benchmarks had pared their initial losses after falling by more than 6% in earlier trade.
Anjili Raval and David Sheppard of The Financial Times had reactions from delegates:
Mohammed Bin Saleh Al-Sada, Qatar’s energy minister, said: “We all need time for further consultation.”
Delegates said Saudi Arabia had in effect torn up an earlier draft of the deal as it decided it could not be party to an agreement that would give Iran any leeway. Tehran had refused to join the freeze as it rebuilds its oil exports after years of sanctions.
“We are very, very disappointed,” said Falah Alamri, the Iraqi representative. “This will affect the [oil] price and our earnings. We wanted a deal.”
Iran did not send a representative to the meeting, which was attended by major non-Opec producers such as Russia and Mexico, alongside countries from the cartel. Together they represent almost half of global crude production.
Hopes for a deal had grown among producers as they try to end a near two-year price slide that has decimated their budgets and sparked fears of a deflationary spiral in the wider world economy.
“The whole world was waiting for this to happen. We were all positive this morning,” said one delegate before the end of the meeting. “If it doesn’t, this is not good.”
Libby George of Reuters had analyst feedback on the failed meeting:
Brent crude had reached a four-month high of just under $45 per barrel last week on hopes that the freeze deal would slow ballooning oversupply.
Its collapse revived some fears that government-controlled producers will ramp up their battle for market share by offering ever-steeper discounts.
Morgan Stanley said the failure sparked “a growing risk of higher OPEC supply,” especially as Saudi Arabia threatened it could hike output following the failed deal.
It could also impact the broader economy, thus putting demand at risk.
“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.
“Concerns over financial stability in the energy sector and a further fall in drilling capex are headwinds to growth against an already fragile global economic backdrop.”
But others said OPEC’s failure to act, and the subsequently lower oil prices, would simply shift rebalancing away from the cartel and towards higher cost producers.
“Once again the Saudis have delivered a hammer blow to fellow producers,” said David Hufton, managing director of broker PVM. “It promises to be the final nail in the coffin for those shale producers and their lenders hanging on for a short-term price reprieve.”
