Hands up – who thought a deal was going to get done in Doha? The market had hoped – well, we all did – but Sunday was a big let-down.
Brent tumbled by as much as 7% on Monday after IOEC and the no-OPEC member Russia stalked out the room, following a fierce five hour debate about whether or not to freeze production levels. Saudi Arabia had warned it would only do a deal if Iran signed up too but as reported last week Tehran was disinclined to put pen to paper, interested more on regaining lost ground after the cessation of international sanctions. Oil Minister Bijan Namdar Zanganeh suspects this deal is little more than an attempt to hold his output levels down. At a press conference on Monday he told reporters that the “measure is just an illusion.”
Indeed that was backed by Russia’s oil minister Alexander Novak who appeared frustrated that what had been billed for the day was a non-starter. “I thought countries that came here, came to agree and not to discuss the need of joining in of those countries that were not participating. We had been disputing today a lot and that was because some countries from OPEC changed their positions in the morning.”
What happened next was predictable. The market tanked, frightened most by the threat from Riyadh that if there was no deal, it would drastically ramp up production and add to the global supply glut. US benchmark West Texas Intermediate for May delivery dropped almost 5% at $38.37. Brent crude lost 4.6% to $41.13. As The Telegraph reports, the biggest hits fell on the energy firms – BHP Bilton from Sydney was down 3%, Rio Tinto lost 1.6% and Woodside Petroleum fell 1.4%.
The Qatari energy minister Mohammed al-Sada told reports, “We concluded we all need time to consult further.” He was asked if it had been Iran’s fault and replied, “The freeze could be more effective definitely if major producers be it from OPEC members like Iran and others as well as non-OPEC members are included in the freeze.”
IG Markets’ Angus Nicholson blamed geopolitics. “With Saudi Arabia fighting proxy wars with Iran in Yemen and Syria/Iraq, it is understandable that they had little inclination to freeze their own production and make way for newly sanctions-free Iran to increase their market share.”
Fear not though. An upbeat assessment came from Gary Ross the founder of the NY-based consultancy PIRA (and rather unfortunately titled if you know your Northern Irish politics) PIRA, who viewed the failure to agree a deal as negative but not catastrophic. “The market has recently moved up due to tightening balances.. We see geopolitical risks to supply rising, we see US production declining. In many respects the rebalancing has already started.”
OPEC is due to gather once again in Vienna on June 2nd. At this juncture we’d like to quote Einstein. “Insanity is repeating the same mistakes and expecting different results.”