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.
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Iran’s Oil Minister Bijan Zangeneh on Monday described a plan to implement a freeze on the output of key oil producers as a “new sanction” against the country’s oil industry.
Saudi Arabia, the kingpin of OPEC, previously said that it needed the cooperation of all major oil producers before an output freeze would be enacted. Saudi Arabia’s minister of Oil and Mineral Resources Ali al-Naimi (C) arrives for the organization of Petroleum Exporting Countries (OPEC) meeting, in the Qatari capital Doha, on April 17, 2016. “This has severely damaged the credibility of oil producers in general and of OPEC in particular”, Commerzbank said.
Benchmark Brent crude oil was down .78 to about on Monday morning – a fall of 4 percent for prices that had otherwise been on the rise from a low of $26 in January.
Lower potential US supply is one of the reasons why oil prices have rallied more than 60 percent since their early year lows – alongside expectations of some sort of deal emerging at the meeting in Doha. Iran is unwilling to curb output as the country is just starting to boost oil output after years of sanctions crippled the country.
Stock markets, which had also slumped on the back of concern about the oil price, also recovered their losses by the end of the day.
Even before the meeting, a report by the International Energy Agency had concluded that a mere production freeze would have a only limited effect on physical oil supply.
Prices had rebounded last week on hopes that OPEC and non-OPEC producers such as Russian Federation would agree to freeze output levels. Riyadh is ready to cap production in concert with other countries, “if there is anyone that decides to raise their production, then we will not reject any opportunity that knocks on our door”, said the prince.
Thus, with the US cutting production by 1 million barrels, Saudis increasing production by 1 million barrels, Iranians increasing production by 600,000, and demand going up by 1.2 million – that leaves the world short 600,000 barrels a day. “This impasse could see a sustained medium-term depression in oil prices”.
Any deal that pushed up prices would be “self-defeating” because it would allow a revival of drilling by USA shale producers, who can return to work at $55 a barrel, according to Goldman Sachs.
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“What is clear coming out of this is that OPEC would no longer be the main driver of oil prices”, Lee told AFP.
