The strategy led to a glut in the oil markets that has pushed prices to their lowest levels in years. Meanwhile, Iran can hardly go along with freezing output levels as the country has just begun increasing its production following the lifting in January of economic sanctions imposed by the United States and European countries over Tehran’s nuclear development.
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Saudi Arabia cut its oil export price by $10 last week, and Iran followed soon after.
Russia’s energy minister asked Naimi on Sunday if any kind of binding deal to freeze output would be possible, according to sources.
Reuters sees the Saudi move in the context of rising regional tensions with Iran, noting that the Doha meeting included some “fierce debate” between the Saudis and Iran’s patron Russian Federation, one of the non-OPEC nations represented at the talks. Their bickering was the main factor behind the collapse of a deal on April 17 to freeze output, despite many of OPEC’s 13 oil-producing members supporting an agreement with producers outside the group to boost prices.
The potential is for crude to fall further in coming sessions as long positions built up in the expectation of some sort of producer agreement are liquidated in the face of the reality of no deal.
Barden said that there was never any chance of a production freeze agreement in Doha at the weekend, and the resulting disagreement between members was fully expected.
The failure of the talks in Doha prompted a knee-jerk response in the markets that was tempered perhaps by news of a strike by oil workers in Kuwait to protest government cutbacks.
“I don’t suggest that we should produce more, but we can produce more”, Salman, who is the country’s defense minister and chairman of the Supreme Council of the Saudi Arabian Oil Co., which sets the country’s oil policy, said in an interview with Bloomberg News. The contract traded in NY closed down 58 cents, or 1.4, percent, at $39.78 a barrel Monday, while the global standard, Brent, fell 19 cents to $42.91.
In practice however, the meeting would not change much in terms of global demand and supply.
“Gradually declining non-OPEC production as well as planned maintenance in the face of resilient oil demand in first quarter (Q1) have recently pointed to improving oil fundamentals”, analysts at Goldman Sachs said.
The question was pertinent for OPEC’s core Arab state members and above all Saudi Arabia, which had given mixed signals about the proposed freeze.
“It seems that for the Saudis politics and national pride are still more important than the price of oil”, said Ralph Leszczynski of shipbroker Banchero Costa.
Saudi Arabia has revved up oil production in what is widely seen as an attempt to gain market share over competitors such as the US and even Canada, whose oil requires higher prices in order for new projects to break even.
Thomas Pugh, a commodities economist at London-based Capital Economics, said Saudi Arabia has a spare capacity of over 2 mbpd, which it has “traditionally kept as a buffer against unexpected supply shocks”.
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They are said to continue negotiating intermittently until the next meeting of the Organization of the Petroleum Exporting Countries scheduled in June. Despite the shale boom in the US, from January 2015 to January 2016, production levels in the USA have more or less stagnated. Global shares are also soaring with the rally in oil prices.
