Oil prices tumble after Doha talks collapse

Oil plunged Monday a
day after top producers failed to reach a deal in Doha to cap output,
fanning fresh fears over a supply glut that has plagued the market.

Prices had rebounded last week on hopes the OPEC exporters’ club and
other major players, including Russia, would agree to freeze output
levels at Sunday’s meeting.

However, discussions in the Qatari capital floundered and a deal to curb
 abundant global oil supplies failed to materialise, sending the market
reeling once again.

At around 1045 GMT, US benchmark West Texas Intermediate for delivery in
 May sank $1.13 to $39.23 per barrel. Brent crude for June delivery lost
 $1.23 to $41.87.

The Doha failure “has raised the fear that the current glut and
oversupply issue is never going to be solved”, GKFX analyst James Hughes
 told AFP.

“It has also brought into question the relevance of the OPEC cartel, if
the most powerful voice in the group cannot affect change.”

The long-running oil glut sparked a vicious collapse from above $100 in
mid-2014 to 13-year lows of around $27 in February.

Kingpin Saudi Arabia insisted it would not agree to freeze production
without the participation of fellow cartel member Iran — which boycotted
 the talks.

– ‘Politics trumped economics’ –

“The much-awaited meeting exposed the political rift between Saudi
Arabia and Iran, and (this) ultimately doomed the agreement,” said
Barclays oil analyst Miswin Mahesh in a research note.

“Though Iran initially planned to send their OPEC minister, his
participation was cancelled when the Qataris insisted that all attendees
 would also be signatories to any deal.

“The political tension between Saudi Arabia and Iran trumped the
economics for agreeing to a deal.”

In both June and December last year, the Organization of the Petroleum
Exporting Countries — which pumps about 40 percent of the world’s oil —
refused to cut output.

The Saudi-backed policy is aimed at pushing the market lower to hurt
less-competitive players, including US shale producers, and maintain
precious market share.

Major exporters from Nigeria to Venezuela, and even Saudi Arabia, have
suffered billions of dollars in lost revenue as prices have collapsed.

Iran — which only recently returned to world oil markets after the
lifting of nuclear-linked Western sanctions in January — has ruled out
capping its own production.

“Iran are more likely to increase their output, after years of
sanctions, and this is the issue,” added Hughes.

“Iran are in no place to start to cut their output and abide by an OPEC
rule after already stating they want to increase output to pre-sanction
levels, levels they are nowhere near currently.”

Opinion had been split over whether a deal on Sunday would be enough to
tackle the global oversupply, which is also due to slowing demand in
major consumer China and burgeoning US shale production.

– ‘Sustained depression’ for prices? –

Rebecca O’Keeffe, head of investment at online broker Interactive
Investor, cautioned Monday that global oil supply was being constrained
by industrial action in Kuwait and Saturday’s deadly earthquake in
Ecuador.

“While there are a number of factors that might curb oil supply in the
short-term — including a strike in Kuwait and the earthquake in Ecuador —
 OPEC’s main problem is the relationship between Saudi Arabia and Iran
and this problem is not going to go away,” O’Keeffe told AFP.

“Indeed, Saudi Arabia may move to increase supply in response to higher
Iranian output in an effort to maintain their market share.

“This impasse could see a sustained medium-term depression in oil
prices.”

A walkout by thousands of Kuwaiti oil workers entered its second day on
Monday, slashing production by over 60 percent as the government looks
abroad to recruit foreign employees