This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2016/04/19/business/dealbook/oil-price-markets.html

The article has changed 11 times. There is an RSS feed of changes available.

Version 2 Version 3
Oil Prices Regain Deepest Losses After Deal to Freeze Production Fails Volatility Returns to Oil Market After OPEC Deal Fails
(about 5 hours later)
LONDON — Oil prices plunged in Asian trading on Monday before recovering somewhat in Europe, as investors and traders responded to the weekend failure by oil-producing nations to agree on a production freeze. It’s back to Square 1 for the oil markets.
Analysts said that any disappointment over a production deal at Sunday’s meeting in Doha, Qatar, was being offset somewhat by an energy workers’ strike in Kuwait that could crimp global oil supplies. The failure of major producers to agree on an output freeze at a highly anticipated meeting in Doha, Qatar, this weekend underscored the still long and painful road to stabilize energy markets.
The Doha meeting included officials from most of the Organization of the Petroleum Exporting Countries as well as Russia. It was supposed to calm markets and show that Russia and Saudi Arabia — two major producers — were cooperating. But the talks faltered, partly because Saudi Arabia wanted Iran to participate in the freeze. The news pushed down oil prices as traders were caught flat-footed by the lack of agreement. The markets had assumed that a deal was close when energy ministers from members of the Organization of Petroleum Exporting Countries as well as Russia met on Sunday.
The breakdown undermined hopes of even a limited output freeze that might help oil prices rise. Yet since many oil-producing countries, including Saudi Arabia and Russia, are pumping flat out, a freeze agreement might have been more a signal that petroleum producers were willing and able to cooperate than having any real impact on the global oil glut. But the last-minute absence of Iran, one of the OPEC’s biggest producers, helped scuttle any deal after Saudi Arabia insisted that the entire group participate in an agreement. Eager to increase oil output to its pre-sanction levels, Iran had ruled out a production freeze and on the eve of the meeting decided not attend the Doha gathering.
“The main message is that OPEC is not united and, in particular, there is a big divide between Saudi Arabia and Iran,” Kevin Norrish, the head of commodities research for Barclays, said in a telephone interview on Monday. “The fact that we got nothing at all,” he said, “was not a likely outcome for most people going into this meeting.” While the Doha meeting might have helped set the stage for a smooth recovery in energy markets, the road ahead promises to be much more bumpy, given the glut of oil in the system. Energy analysts now expect oil markets to take longer to rebalance, as production ebbs more slowly and demand growth eventually catches up.
Prices for West Texas intermediate and Brent crude, two global benchmarks, dropped almost 7 percent in early trading in Asia, before paring their losses. By early afternoon in London, both were still off by more than 4 percent, with West Texas crude at $38.58 a barrel and Brent crude at $41.50 a barrel. Without a deal, uncertainty weighed on the markets on Monday.
European stock markets were down only slightly, which analysts attributed to the Doha meeting and to the strike in Kuwait, which appears to have substantially cut into the oil producing country’s output. Kuwait is the fourth-largest producer among OPEC’s 13 members, according to data published by the group. Crude oil futures in New York fell 1.1 percent to $39.90 a barrel. In London, Brent crude futures fell almost 7 percent in early trading but recovered all their losses by the end of the day. Monday’s declines were limited because of an oil workers’ strike in Kuwait that significantly crimped production there.
But energy stocks in Europe nevertheless fell sharply. Shares in the French energy giant Total fell as much as 4.7 percent, while its British counterpart BP had its stock price decline 3.9 percent at one point. Both later recovered, but they were still down for the day. “The weekend headlines will further support the already high level of price volatility,” analysts with Goldman Sachs wrote in a report on Monday.
“It’s quite tricky,” Mr. Norrish said. “You’re balancing off the disappointment” of the Doha meeting ending without an agreement, with the lost production in Kuwait. The failure of the Doha meeting highlighted once again that energy markets – and particularly oil – remained largely hostage to the rivalry between Saudi Arabia and Iran for leadership and influence in the Middle East.
“It shows the market is very uncertain how to interpret these different bits of news and fit them together,” he said. Oil prices collapsed over the last year after major producers, led by Saudi Arabia, decided to flood the market and pump flat out to secure more market share. Ostensibly, the policy was aimed at pushing high-cost producers in the United States out of the market.
It is unclear how long the strike, by thousands of Kuwaiti oil and gas workers protesting a government plan to overhaul public-sector salaries, will last, the news agency Reuters said. But by producing full out, Saudi Arabia was also hurting other oil producers within OPEC, including Iran and also Russia, which is not an OPEC member. Both need higher prices to balance their budgets.
Saad al-Azmi, a spokesman for the Kuwait Oil Company, wrote in a post on the state-owned firm’s Twitter account on Sunday that production had been cut to 1.1 million barrels of oil a day, according to Reuters. That would be slightly less than half of normal daily output for Kuwait. But the strategy backfired, and it led to a glut in the oil markets that has pushed prices to their lowest levels in years.
The idea of a freeze in production came up in February, as prices fell below $30 a barrel, and initially helped provoke a rebound in the market. At the time, Saudi Arabia, Russia, Qatar and Venezuela had agreed in principle on a freeze but made it contingent on participation by other major producers.
After the meeting, officials from oil-producing countries said they would work on a new agreement for the next OPEC meeting, to be held in Vienna in June.
At the same time, lower prices are beginning to bite. Last week, the International Energy Agency said that global oil markets would “move close to balance” in the second half of the year as lower prices hurt producers outside of OPEC.
The global oil glut is expected to drop to 200,000 barrels a day in the last six months of the year, from 1.5 million in the first half, the agency said in its monthly oil report released on Thursday. The group found that outside of OPEC, output will decline by the most since 1992 as the American shale oil boom falters.
“There is no doubt as to the direction of travel for the supply-demand balance,” according to the energy adviser to industrialized nations. “There are signs that the much-anticipated slide in production of light, tight oil in the U.S. is gathering pace.”
For that reason, the outcome of the Doha meeting might be moot, according to a report by HSBC titled “Much a-Doha about nothing.”
“The agreement would only have been of symbolic significance, in our view, and would not have altered the supply fundamentals,” according to the report. “We continue to see clear evidence that the market rebalancing is drawing near and expect prices to trend higher as the market tightens in the second half of the year.”
Still, much uncertainty remains, particularly what happens with Saudi Arabia and Iran.
In what might be seen as a warning shot, the Saudi deputy crown prince, Mohammed Bin Salman, said on Friday that Saudi Arabia could raise its crude output by more than a million barrels a day immediately.
“I don’t suggest that we should produce more, but we can produce more,” Prince Salman, who is the country’s defense minister and chairman of the Supreme Council of the Saudi Arabian Oil Company, which sets the country’s oil policy, said in an interview with Bloomberg News.
Saudi Arabia produced about 10 million barrels a day in the first three months of the year.
“If this is the starting shot of a new price war, then we will not get the inventory draw we were projecting this summer, and we will have building inventory in the fall instead, and that that will invite the risk of new price lows,” said Jan Stuart, global energy economist at Credit Suisse.