Analysts raise fresh fears about oil market after failed meeting

Oil prices have slipped following news that there won’t be an output freeze by the world’s biggest producers after weekend talks in Doha failed to produce an agreement.

Here’s what analysts are saying on Monday (quick read: the strike in Kuwait could be big this week, and longer-term supply and demand trends are more significant):

Helima Croft at RBC Capital Markets sees prices could soon be back in the mid-$30s range but that an oil worker strike in Kuwait “could have a significant impact depending on its duration”. She adds:

The failure in Doha of the OPEC/non-OPEC meeting to result in a collective freeze has shown that the sovereign producers are willing to go their own way, especially Saudi Arabia. With eyes turning to the next meeting, we struggle to see how the outcome will be any different unless Saudi Arabia or Iran has a change of heart.
The post-Doha initial knee-jerk reaction lower is expected, but we expect prices to find support in the mid-$30/bbl range given an otherwise improving fundamental backdrop. The inability to strike a deal is not for lack of trying, so despite calls for further consultation and potential follow-up meetings, this botched attempt at a deal may sterilize the influence on prices leading into future meetings.
Analysts at Credit Suisse also hone in on Kuwait – news of the strike has, understandably, played second fiddle to headlines over the deal-that-wasn’t, but nonetheless it will have a more tangible effect on oil supply in the coming days:

Fundamentally, the bigger news may well that Kuwait’s oil production was reduced by a whopping 1.6 million barrels per day (to some 1.1 Mb/d) as a crippling oil workers strike took upstream and downstream units off line Sunday. This disruption adds to supply issues across Nigeria, Iraq and Libya that have in recent month helped propel the oil rally.
At UBS, analyst Jon Rigby writes:

The break-down in producers’ relationships does have some implications: it suggests that any attempt to balance the market, should demand falter, will be tougher to engineer while also leaving open the possibility that Saudi may choose to expand its production from its as yet untested spare capacity, dampening the price effect of any market tightening later this year and into 2017. OPEC is next scheduled to meet on 2 June although we do not expect anything tangible.

We continue to expect market rebalancing around year-end.
Danske Bank looks at longer-term factors:

In the meantime, the downward trend in the dollar, the improvement in the outlook for the Chinese economy and the recent drop in global manufacturing activity bottoming out should drive the oil price higher. In the medium term, US oil production is set to decline and recent developments in the US oil rig count suggest that the current official forecasts for US production could be underestimating the negative impact on output from the low oil price, which should be another supportive factor for the oil price.
And analysts at Commerzbank say, well…. what did you expect?

Surely it does not come as a real surprise that a supply cartel that is facing the risk of rising third party supplies is not able to control prices any longer? Some market participants nonetheless seem to interpret the news that talks between the OPEC and other oil producing countries in Doha were postponed without result as a surprise.
At pixel time Brent crude, the global marker, was down 4.6 per cent at $41.11 a barrel – having earlier fallen as much as 7 per cent. West Texas Intermediate was down 5 per cent at $38.36 a barrel.