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| Volatility Returns to Oil Market After OPEC Deal Fails | Volatility Returns to Oil Market After OPEC Deal Fails |
| (about 5 hours later) | |
| It’s back to Square 1 for the oil markets. | It’s back to Square 1 for the oil markets. |
| 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 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 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 the Petroleum Exporting Countries as well as Russia met on Sunday. | 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 the Petroleum Exporting Countries as well as Russia met on Sunday. |
| But the last-minute absence of Iran, one of 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. | But the last-minute absence of Iran, one of 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. |
| 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. | 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. |
| Without a deal, uncertainty weighed on the markets on Monday. | Without a deal, uncertainty weighed on the markets on Monday. |
| Crude oil futures in New York fell 1.4 percent to $39.78 a barrel. In London, Brent crude futures fell almost 7 percent in early trading but recovered most of 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. | Crude oil futures in New York fell 1.4 percent to $39.78 a barrel. In London, Brent crude futures fell almost 7 percent in early trading but recovered most of 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. |
| 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. | 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. |
| In what might be seen as a warning shot, the Saudi deputy crown prince, Mohammed Bin Salman, said ahead of the meeting on Friday that Saudi Arabia could raise its crude output by more than a million barrels a day immediately. | In what might be seen as a warning shot, the Saudi deputy crown prince, Mohammed Bin Salman, said ahead of the meeting on Friday that Saudi Arabia could raise its crude output by more than a million barrels a day immediately. |
| “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 then that will invite the risk of new price lows,” said Jan Stuart, global energy economist at Credit Suisse. | |
| 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. | 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. |
| 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. | 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. |
| But the strategy backfired, and it led to a glut in the oil markets that has pushed prices to their lowest levels in years. | 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. | 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. | 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. | 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. | 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.” | “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.” | 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.” | “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. Prince Mohammed’s comments on Friday suggested that the current standoff between Saudi Arabia and Iran could last for several more months, posing renewed uncertainty on the direction of energy markets. | Still, much uncertainty remains, particularly what happens with Saudi Arabia and Iran. Prince Mohammed’s comments on Friday suggested that the current standoff between Saudi Arabia and Iran could last for several more months, posing renewed uncertainty on the direction of energy markets. |
| “I don’t suggest that we should produce more, but we can produce more,” Prince Mohammed , 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. | “I don’t suggest that we should produce more, but we can produce more,” Prince Mohammed , 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. Analysts doubt how long the kingdom could be able to ramp up production in a sustainable manner and pump 11 million barrels a day, something it has never done before. | Saudi Arabia produced about 10 million barrels a day in the first three months of the year. Analysts doubt how long the kingdom could be able to ramp up production in a sustainable manner and pump 11 million barrels a day, something it has never done before. |
| “The weekend headlines will further support the already high level of price volatility,” analysts with Goldman Sachs wrote in a report. | “The weekend headlines will further support the already high level of price volatility,” analysts with Goldman Sachs wrote in a report. |