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Oil prices plunge after major producers fail to reach output deal

Haidar Mohammed Ali / AFP | The collapse of talks in Doha Sunday sent oil prices tumbling early on Monday April 18, 2016.

Oil prices fell Monday after talks among the world’s top oil producers to cap output and ease a global supply glut ended in collapse.

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Hopes that the long-anticipated talks in Doha on Sunday would see the world’s biggest oil producers agree to a freeze had helped oil prices climb to 2016 highs last week, having approached 13-year lows just months ago.

But as the six-hour long negotiations came to an end, Qatari Energy Minister Mohammed bin Saleh al-Sada announced that the oil producers needed “more time” to reach an agreement.

“The general conclusion was that we need more time to consult among ourselves in OPEC [Organization of the Petroleum Exporting Countries] and non-OPEC producers,” Sada said.

Brent crude futures tumbled about 4.6 percent to $41.10 on Monday, while US crude slid about 5.2 percent to $38.26 in the wake of the announcement.

Rivalry between OPEC and regional heavyweights Saudi Arabia and Iran appear to have prevented a deal being struck.

Iran boycotted the meeting after refusing to abide by any production freeze agreement saying it wants to raise its output to pre-sanctions levels.

Asked if Iran was at the centre of discussions that included non-OPEC Russia, the world’s top producer, Sada said that Tehran’s participation would have made any freeze more effective.

“We respect their (Iran’s) position... certainly a freeze will be more effective if major producers including Iran are included,” said Sada. “That would help rebalance the market.”

Saudi deputy crown prince Mohamed bin Salman had insisted that Riyadh will not accept a freeze in production without Iran’s participation.

Sada said that no date was fixed for any meeting in the future among oil producers, adding they needed to have more consultations.

The impact of the failure of the much-anticipated meeting on prices could be catastrophic.

The Qatari minister tried to play down the full impact on crude prices, however, saying that the oil market fundamentals have improved since February when Saudi Arabia, Russia, Venezuela and Qatar struck an initial agreement on the freeze.

Sada said he expected the prices to be more responsive to fundamentals rather than to sentiment.

The talks were delayed by several hours after some countries demanded changes to a draft agreement that calls for freezing production until October, a delegate told AFP.

The delegate said a “small team of experts” was assigned to make the changes before the ministers went into the official meeting in the afternoon.

Nations inside and outside of OPEC are anxious to stem a market nosedive that has cost exporters billions in lost revenue.

From above $100 in mid-2014, oil prices dropped to 13-year lows of around $27 in February due to a supply glut, though they have since rebounded to about $40.

Iran won’t ‘give up’ production

Saudi Arabia has insisted all major producers must be on board for the freeze to work, including fellow OPEC member and regional rival Iran.

But Tehran, which has boosted production following the lifting of sanctions under its nuclear deal with world powers, has rejected any talk of a freeze.

Iran had initially said its OPEC representative would participate in the talks, but on Sunday Oil Minister Bijan Zanganeh announced Tehran would send no delegation at all.

“The Doha meeting is for people who want to participate in the production freeze plan... but since Iran isn’t expected to sign up to the plan the presence of an Iranian representative isn’t necessary,” Zanganeh was quoted as saying by the Shana news agency.

“Iran will in no way give up its historic production quota,” Zanganeh said.

OPEC said on Wednesday that Iranian oil production in March was 3.3 million bpd (barrels per day), up from 2.9 million in January, but still short of its pre-embargo level of around 4.0 million.

OPEC said its members pumped 32.25 million bpd in March – with Saudi Arabia accounting for nearly a third – up from an average of 31.85 million bpd in 2015.

Saudi Arabia has refused to cut production despite the price fall, as it seeks to drive less-competitive players, especially US shale producers, out of the market.

But pressure has been building as falling oil revenues hit state coffers, with Riyadh posting a record budget deficit last year.

Oil prices had tumbled on Friday as traders bet that the meeting in Doha would yield no effective measures to curb the global oversupply.

On Thursday the International Energy Agency had warned against expecting too much from the Doha talks, saying that the meeting would have only a “limited” impact on supplies.

(FRANCE 24 with AFP)

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