Oil prices are on course for their largest slide in nearly two weeks on doubts that major producers can agree on supply curbs when they meet over the weekend.
Three-straight days of losses are now foreshadowing what may become of the oil markets after a highly anticipated meeting Sunday between leaders of the Organization of the Petroleum Exporting Countries and non-OPEC producers, primarily Russia, analysts said. The possibility that the biggest producers in the world would start working together to boost prices has spurred oil’s biggest rally in years, but many believe that a deal is unlikely and oil may selloff again after the meeting.
Light, sweet crude for May delivery fell $1.29, or 3.1%, to $40.21 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell $1.36, or 3.1%, to $42.48 a barrel on ICE Futures Europe.
Both benchmarks were up slightly earlier but dropped after a report that Iran’s oil minister, Bijan Zanganeh, won’t attend the oil producers’ summit Sunday in Doha, Qatar.
Bearish traders have been pointing to Iran’s reluctance as a big problem. Some OPEC officials have said no deal will happen without Iran, but its leaders plan to double production to 4 million barrels a day by March now that international sanctions against its exports have ended.
An oil field owned by Bashneft in Bashkortostan, Russia.
Analysts at Citigroup Inc. said Friday morning to expect comments from Russian’s energy minister to prove true, that at best it will be a gentlemen’s agreement with no binding commitments. That makes the Doha meeting relevant only if there is no agreement, according to Citigroup’s team, led by Ed Morse.
“If there is no agreement, then expect a sharp oil market selloff on Monday,” they said. “If there is an agreement in name but market participants realize it has no teeth, (expect) a slower selloff.”
Oil prices have jumped by more than a third since the idea of limiting production at current levels was first floated in mid-February but the rally has stalled in recent weeks amid uncertainty about the outcome of the talks.
Even if the meeting ends with a deal to freeze output, many analysts question whether it would be enough to alleviate the global glut of crude that has pressured prices for the past two years.
The International Energy Agency said in a report on Wednesday that “any deal struck won’t materially impact the global supply-demand balance” during the first half of 2016 as both Saudi Arabia and Russia are already producing at or near record rates. Saudi Arabia pumped 10.19 million barrels a day in March, a decline of 30,000 barrels a day but still close to its peak levels, while Russia’s output hit a three-decade high in March at 10.91 million barrels a day, according to official statistics.
“Our expectations for the meeting are low. Although an agreement on production caps is likely to be reached, it will probably not include any concrete figures or obligations, let alone any sanctions to be imposed in the event of noncompliance,” analysts at Commerzbank said. “In other words, the meeting will do nothing to change the current situation on the oil market.”
On Friday, traders were also digesting news that China’s economy, the world’s second biggest oil consumer, slowed further in the beginning of the year. Chinese gross domestic product expanded by 6.7% year-over-year in the first quarter, in line with forecasts and down from a 6.8% gain in the previous quarter.
While this represented the slowest quarterly growth for China since the height of the financial crisis in 2009, Beijing’s policies to revive growth with tools such as lending and construction appeared to gain traction in March.
Source: Wall Street Journal, April 15
