Oil price tumbles on Doha stalemate

Oil prices sank after attempts by some of the world’s biggest producers to freeze output ended without a deal on Sunday night with Saudi Arabia insisting Iran should be part of any agreement.

Crude oil fell as much as 7 per cent in early trading on Monday in Asia before recovering slightly.

Talks in Doha aimed at achieving the first global oil deal in 15 years had appeared to be on course on Sunday. They broke up late in the day as ministers failed to overcome opposition from Riyadh, which had hardened its stance in recent days.

The failure to reach an agreement set off another drop in the oil price, after tensions between Saudi Arabia and its regional rival Iran proved too great to overcome.

Brent, the international benchmark, was down 3.9 per cent at $41.42 a barrel in afternoon trading in Asia while West Texas Intermediate, the US marker, was down 4.2 per cent at $38.66 a barrel.

Mohammed Bin Saleh Al-Sada, Qatar’s energy minister, said: “We all need time for further consultation.”

Delegates said Saudi Arabia had in effect torn up an earlier draft of the deal as it decided it could not be party to an agreement that would give Iran any leeway. Tehran had refused to join the freeze as it rebuilds its oil exports after years of sanctions.

“We are very very disappointed,” said Falah Alamri, the Iraqi representative. “This will affect the [oil] price and our earnings. We wanted a deal.”

Iran did not send a representative to the meeting, which was attended by major non-Opec producers such as Russia and Mexico, alongside countries from the cartel. Together they represent almost half of global crude production.

Hopes for a deal had grown among producers as they try to end a near two-year price slide that has decimated their budgets and sparked fears of a deflationary spiral in the wider world economy.

“The whole world was waiting for this to happen. We were all positive this morning,” said one delegate before the end of the meeting. “If it doesn’t, this is not good.”

Oil prices had rallied from below $30 a barrel in mid-January to $43 at the end of last week, partly due to the plans for an output freeze that were led by Qatar, Russia and Saudi Arabia.

A second draft that had been circulating on Sunday suggested a freeze would only take place “as long as all Opec countries and major exporting nations” were unanimous on a deal.

Saudi Arabia said in late 2014 that it did not care if oil prices slid to $20 a barrel, but it had recently indicated a shift in its approach amid pressure on the country’s finances.

A senior Opec delegate said last month that the Saudis would comply with an output freeze, even without Iran’s involvement. But the country’s deputy crown prince, Mohammed bin Salman, said that Saudi Arabia would not sign up without Tehran. The two regional powers are backing opposite sides in Syria’s bloody civil war, and Saudi Arabia has been fighting Iranian-backed forces in Yemen.

Delegates, including some of Saudi Arabia’s Gulf Arab allies, asked why the kingdom came to Doha when Iran’s position was known well in advance. They said they had expected Saudi Arabia to rubber-stamp the deal.

One person briefed by Saudi Arabia said they had been looking for Iran to soften its stance, perhaps offering to cap production at a later date. They said Russia and Venezuela had been expected to win concessions from Iran.

Others see signs of a schism between the reforming Prince Mohammed — who quickly became one of the most powerful economic forces in the country after his father ascended the throne last year — and the country’s long-serving oil minister Ali al Naimi.

In recent months Mr Naimi’s status as the lone voice on Saudi oil policy has been challenged by the growing clout of Prince Mohammed — known among diplomats as MbS — who has said he wants to privatise a stake in state oil company Saudi Aramco and lower the country’s long-term economic dependence on oil.

Saudi Aramco chairman Khalid Al Falih, who has been tipped as a possible future oil minister, has also spoken frequently on oil policy over the past year.

“The kingdom is charting a new path with MbS,” said Jamie Webster, an independent oil analyst. “Unwilling to play its old role, oil seems set for a different relationship with the Kingdom.”

In private conversations, people briefed on Saudi oil policy had said the kingdom did not want to have another meeting of ministers unless an outcome could be reached that would be beneficial to the oil price.

The breakdown in talks may have the opposite effect. Hedge funds have established some of the largest ever positions betting on a recovery in prices, even as analysts were sceptical a deal would have significantly altered the balance of the oil market.

We are very very disappointed. This will affect the [oil] price and our earnings. We wanted a deal

Tweet this quote

Many saw a deal to freeze output as a way of buying producers time as low prices stimulated demand and slowed higher-cost output. US shale production, which helped create the glut, is forecast to fall substantially this year.

Alexander Novak, Russia’s oil minister, said after the meeting that he was “surprised” some Opec members had put forward new demands on Sunday morning. In thinly veiled criticism of Saudi Arabia, Mr Novak added Iran was not the cause of the freeze talks failure.

Some countries are still clinging to hope of a deal later this year, but Opec will first have to navigate its next official meeting in June.

Countries hoping for higher prices may find some short-term assistance from Kuwait, where domestic oil workers protesting at government changes to public sector pay driven by the oil crash, went on strike on Sunday.

That led output in the country to fall by almost two-thirds to just over 1m barrels a day even as foreign workers remained at fields. The strikes illustrate some of the tensions facing even the wealthiest producing countries.

“Ultimately politics won,” said Amrita Sen at Energy Aspects, referring to tensions between Saudi Arabia and Iran. “We expect prices to sell off sharply tomorrow especially given the hype around the deal although the Kuwaiti disruptions may limit the downside.”