Oil plunged Monday a day after top producers failed to reach a deal in Doha to cap output, fanning fresh fears over a supply glut that has plagued the market.
Prices had rebounded last week on hopes the OPEC exporters’ club and other major players, including Russia, would agree to freeze output levels at Sunday’s meeting.
However, discussions in the Qatari capital floundered and a deal to curb abundant global oil supplies failed to materialise, sending the market reeling once again.
At around 1045 GMT, US benchmark West Texas Intermediate for delivery in May sank $1.13 to $39.23 per barrel. Brent crude for June delivery lost $1.23 to $41.87.
The Doha failure “has raised the fear that the current glut and oversupply issue is never going to be solved”, GKFX analyst James Hughes told AFP.
“It has also brought into question the relevance of the OPEC cartel, if the most powerful voice in the group cannot affect change.”
The long-running oil glut sparked a vicious collapse from above $100 in mid-2014 to 13-year lows of around $27 in February.
Kingpin Saudi Arabia insisted it would not agree to freeze production without the participation of fellow cartel member Iran — which boycotted the talks.
– ‘Politics trumped economics’ –
“The much-awaited meeting exposed the political rift between Saudi Arabia and Iran, and (this) ultimately doomed the agreement,” said Barclays oil analyst Miswin Mahesh in a research note.
“Though Iran initially planned to send their OPEC minister, his participation was cancelled when the Qataris insisted that all attendees would also be signatories to any deal.
“The political tension between Saudi Arabia and Iran trumped the economics for agreeing to a deal.”
In both June and December last year, the Organization of the Petroleum Exporting Countries — which pumps about 40 percent of the world’s oil — refused to cut output.
The Saudi-backed policy is aimed at pushing the market lower to hurt less-competitive players, including US shale producers, and maintain precious market share.
Major exporters from Nigeria to Venezuela, and even Saudi Arabia, have suffered billions of dollars in lost revenue as prices have collapsed.
Iran — which only recently returned to world oil markets after the lifting of nuclear-linked Western sanctions in January — has ruled out capping its own production.
“Iran are more likely to increase their output, after years of sanctions, and this is the issue,” added Hughes.
“Iran are in no place to start to cut their output and abide by an OPEC rule after already stating they want to increase output to pre-sanction levels, levels they are nowhere near currently.”
Opinion had been split over whether a deal on Sunday would be enough to tackle the global oversupply, which is also due to slowing demand in major consumer China and burgeoning US shale production.
– ‘Sustained depression’ for prices? –
Rebecca O’Keeffe, head of investment at online broker Interactive Investor, cautioned Monday that global oil supply was being constrained by industrial action in Kuwait and Saturday’s deadly earthquake in Ecuador.
“While there are a number of factors that might curb oil supply in the short-term — including a strike in Kuwait and the earthquake in Ecuador — OPEC’s main problem is the relationship between Saudi Arabia and Iran and this problem is not going to go away,” O’Keeffe told AFP.
“Indeed, Saudi Arabia may move to increase supply in response to higher Iranian output in an effort to maintain their market share.
“This impasse could see a sustained medium-term depression in oil prices.”
A walkout by thousands of Kuwaiti oil workers entered its second day on Monday, slashing production by over 60 percent as the government looks abroad to recruit foreign employees.