A meeting of major oil producers in Doha, Qatar ended without an agreement Sunday after Saudi Arabia vowed to unleash a million extra barrels of oil per day should Iran refuse to join a global agreement to freeze output.
Nigeria’s petroleum minister Emmanuel Kachikwu was the first to come forward in stating that the Doha summit was a failure. He told reporters that Iran was one of the main stumbling blocks to reaching an accord, with OPEC kingpin Saudi Arabia insisting that a production freeze should extend to all producers.
Around 16 countries, including Russia and several OPEC members, descended on Qatar Sunday to pool support for a proposed production freeze that would help stabilize an oversupplied oil market. According to reports, the meeting was delayed after Saudi Arabia reiterated its view that all cartel members, including Iran, should join efforts to stabilize the market.
The Iranians have remained steadfast in refusing to participate in an output freeze, seeking instead to regain market share after the lifting of US-led sanctions against Tehran in January. Iran’s oil minister Bijan Zanganeh is not attending the Doha meeting.
“If all major producers don’t freeze production, we will not freeze production,” Saudi Prince Mohammed said in an interview on Thursday. “If we don’t freeze, then we will sell at any opportunity we get.”
According to data from the Commodity Futures Trading Commission (CFTC), financial institutions raised their bullish bets on oil prices in the week ended April 12 following back-to-back weekly cuts. The increase in bullish positions reflected growing optimism about the Doha meeting. However, that optimism has since dimmed, as regional rivals continued to clash on a production strategy.
Oil prices declined for three consecutive days last week after setting fresh yearly highs on Tuesday. The West Texas Intermediate (WTI) benchmark for US crude futures settled down $1.14 or 2.8% at $40.36 a barrel Friday. Global benchmark Brent crude also fell 74 cents or 1.7% to close at $43.10 a barrel in the final session of the week.
The OPEC Reference Basket rose by more than 20% in March to reach $34.65 a barrel, the cartel said in its April market report.
“Positive market sentiments continue to arise from the output freeze plan being considered by major crude exporters. Support also came from expected decreasing US production, higher refinery runs, declining production in several other regions and an increase in unplanned outages,” OPEC said.
The $40 a barrel mark continues to be a critical level for oil prices. It is at this level that analysts have observed a decoupling of oil and stocks, as investors feel more confident that a firm bottom has been established. US equity gauges at trading near 2016 highs.
The Doha meeting has been in the works since February, when Russia and Saudi Arabia agreed to freeze production at January levels in an attempt to support prices. Oil prices have since risen more than 50% on optimism that major oil producers would participate in the production freeze.
However, according to analysts, both Russia and Saudi Arabia were pumping at near-record highs in January, indicating that a production freeze would do very little to stabilize an oversupplied market.
OPEC oil production rose in March on higher supplies from Iran and Iraq. Supply from the 13-member Organization of the Petroleum Exporting Countries rose to 34.47 million barrels per day in March, up from 32.37 million barrels in February. Iran has increased output by 230,000 barrels per day since December, according to data collected by Reuters.
The global commodity markets are likely to experience heavy movement on Monday, as investors react to the latest developments in Doha. Several important data releases could also impact the performance of crude prices.
On Wednesday the Energy Information Administration (EIA) will release weekly inventory data. US commercial crude stockpiles surged by 6.6 million barrels last week, bringing the total amount in storage to 536.5 million barrels. However, gasoline inventories declined by 4.2 million barrels to 239.76 million barrels, a much bigger draw than the 1.4 million forecast by economists.
On Friday, oilfield services provider Baker Hughes will release data on active US oil rigs. The number of US rigs drilling for oil fell by three to 351 last week, the fourth consecutive weekly drop and lowest level since November 2009. At this time last year, there were 545 more rigs in service, data from Baker Hughes showed.
The US rig count has declined by 184 in 2016, a clear indication that producers were scaling back exploration amid very weak prices. The rig count is currently at its lowest level since the 1940s.