Oil prices slid after a meeting between major producing nations on a proposed output freeze fell apart, leaving the world grappling with an excess of unwanted crude.
Oil exporting nations, including non-Opec Russia, had gathered in the Qatari capital of Doha for what was expected to be the rubber-stamping of a deal to stabilise output at January levels until October.
But the deal crumbled when Opec heavyweight Saudi Arabia demanded that Iran join in despite its repeated assertions it would not do so until it had reached pre-sanctions levels of output.
“Saudi Arabia intentionally torpedoed the agreement and was willing to accept its failure,” Commerzbank said in a note.
“This has severely damaged the credibility of oil producers in general and of Opec in particular.”
Brent crude futures yesterday fell almost 7% in early trading before bouncing back to $41.70 a barrel, down 3.3% since their last settlement.
Traders said an oil worker strike in Kuwait that cut the country’s crude output by some 60% prevented Brent from tumbling below $40 per barrel.
A cut in US drilling down to 2009 levels had prevented steeper falls there. Benchmark US crude futures were down by 3.6% at $38.90 a barrel after falling as low as $37.61 earlier in the day.
On Monday, Iran urged other oil producers to continue efforts to prop up prices, but insisted it was justified in not yet freezing its own output following the lifting of sanctions in January.
The deal’s 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.
Still, supply disruptions elsewhere, such as in Opec member Nigeria, helped underpin prices.
Investment bank Goldman Sachs said “gradually declining non-Opec production as well as planned maintenance in the face of resilient oil demand in the first quarter have recently pointed to improving oil fundamentals”.
Additionally, analysts 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.”
Some 18 oil nations, including Opec’s leader Saudi Arabia and top non-Opec producer Russia, had been expected to rubber-stamp a deal — in the making since February -— to stabilise output at January levels until October 2016.
The talks failed because Iran argued it could not join the freeze because it needs to regain production levels after the lifting of sanctions.
Saudi Arabia, which had signaled it was willing to sign the deal without Iran, surprised participants last week by asking that Iran’s invitation to the Doha talks be cancelled.
Iran responded by saying it was happy not to attend.
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