Oil plunges after output talks fail amid Saudi demands over Iran

Qatar's Energy Minister Mohammed bin Saleh al-Sada holds a press conference during a meeting between major oil producing countries on April 17, 2016.
Qatar's Energy Minister Mohammed bin Saleh al-Sada holds a press conference during a meeting between major oil producing countries on April 17, 2016. PHOTO: AFP

DOHA (BLOOMBERG) - Oil tumbled by the most in two months after output talks on Sunday (April 18) between the world's biggest producers ended without any agreement on limiting supplies, a diplomatic failure that threatens to renew the rout in prices.

Futures fell as much as 6.8 per cent in New York, the biggest intraday drop since Feb 1.

The summit in the Qatari capital, which dragged on for more than ten hours beyond its initially scheduled conclusion, finished with no final accord. There were significant hurdles to any deal after Saudi Arabia's Deputy Crown Prince Mohammed bin Salman said the kingdom wouldn't restrain its production without commitments from other major producers including Iran, which has ruled out freezing for now.

"The weekend talks are demonstration that the Saudi government, as the deputy crown prince has clearly stated, doesn't want to cede market share," said Ed Morse, head of global commodity research at Citigroup by phone. "They are fearful that the world may be in a weak or bearish market for a long period of time. In a bear market, as they learned from the 1980s, if they cede market share it is very difficult to get it back."

West Texas Intermediate for May delivery lost as much as US$2.75 to US$37.61 a barrel on the New York Mercantile Exchange and was at US$38.36 at 10:35 am Hong Kong time. The contract fell US$1.14, or 2.8 per cent, to US$40.36 on Friday. Total trading volume was almost fivefold the 100-day average.

Brent for June settlement dropped as much as US$3, or 7 per cent, to US$40.10 a barrel on the London-based ICE Futures Europe exchange. The contract lost 74 cents, or 1.7 per cent, to US$43.10 on Friday. The global benchmark was at a US$1.47 premium to WTI for June.

Oil ministers from 16 nations, representing about half the world's output, gathered in the Qatari capital in a bid to stabilize the global market, the first significant attempt at coordinating oil output between the Organization of Petroleum Exporting Countries and nations outside the group in 15 years. Discussions stumbled after Saudi Arabia and other Gulf nations wouldn't agree to any deal unless all Opec members joined including Iran, which wasn't present at the meeting, Russian Energy Minister Alexander Novak told reporters.

Forty traders and analysts surveyed by Bloomberg last week were evenly split on whether a consensus would be reached, and tensions were visible throughout the negotiations. While analysts doubted that any accord would have a significant impact on the global oil surplus, the group's inability to agree undermines any prospect of coordinated action to solve the market slump.

Russia was surprised there wasn't an agreement, said Novak. Officials from Saudi Arabia, Qatar, Venezuela and Russia - who initiated the push for a freeze in February - agreed to a draft accord on Saturday, but some countries changed their position right before the summit the following day, leading to "hot discussions," he said.

"The fact that Saudi Arabia seems to have blocked the deal is an indicator of how much its oil policy is being driven by the ongoing geopolitical conflict with Iran," said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University and a former White House official.

A freeze could have sped up the rebalancing of the market by six months, which may now take until mid-2017, Novak said in a press conference after the talks. The "door is not closed" to a future accord, although "Russia won't be as optimistic as before," he said.

Opec members will consult among themselves and with other oil producers until June, Qatar's Energy Minister Mohammed Al Sada said at news conference after the meeting. The next scheduled bi-annual Opec meeting is on June 2.