Crude oil prices drop After OPEC Meeting Disappoints
Crude oil prices dropped by as much as seven percent after OPEC countries failed to reach a production freeze agreement during the group’s meeting in Doha, Qatar on Sunday. Capital Economics notes: Saudi Arabia’s insistence that Iran agree to freeze oil production scuppered any chance of a deal in Doha at the weekend and suggests that the Kingdom is in no mood to abandon its oil market strategy. And with this coming alongside the latest comments by Deputy Crown Prince Mohammed bin Salman, we remain comfortable with our view that the Saudi consolidation to make the adjustment to low oil prices.
This outcome should drive crude prices down 10% to 20%, back to the low-to-mid $30 per barrel range. Over the last 8 weeks, oil bulls have been like Forrest Gump running through the jungle with bullets flying past them. From here, challenging ST fundamentals and the liquidation of massive financial length should drive crude lower before S/D balances tighten towards year-end.
Goldman Sachs believes
OPEC and several non-OPEC producers failed to reach an agreement to freeze production in Doha today, Sunday April 17. Participants commented on requiring more time to reach a deal although the key stumbling block appears to be the requirement by Saudi Arabia that Iran participates. Saudi’s stance is consistent with comments by deputy crown prince Mohammed bin Salman during two interviews with Bloomberg this month (April 1 and Thursday April 13) and goes against Iran’s long held goal to quickly increase production to recover market share. On its own, we view this outcome as bearish for oil prices given consensus expectations for a “soft guidance” freeze at January production levels. But this lack of an agreement does not imply that OPEC production will recover in the short-term, as the year-to- date stabilization owes to ongoing disruptions and maintenance rather than coordination. It is further of no impact to our forecasts as year-to-date production of OPEC (ex. Iran) and Russia have remained close to our 2016 average annual forecast of 40.5 mb/d.
RBC analysts note:
The OPEC/non-OPEC meeting in Doha failed to result in a freeze agreement, in line with our view. With his decision to double down on the demand for full Iranian participation in a freeze agreement, Saudi Arabia’s de-facto ruler Mohammad bin Salman (MBS) proved to be the ultimate disruptor at Sunday’s much anticipated meeting of sovereign producers in Doha. Saudi Arabia stood firm despite the determined efforts of its key GCC allies such as Qatar and Kuwait, which normally stand shoulder to shoulder with the Kingdom on oil policy, to forge an agreement to freeze output at January levels irrespective of Iranian involvement. Iran’s decision not to even attend the meeting and its repeated rejection of the freeze likely hardened Saudi’s resolve to stick to its guns. The assembled oil minsters tried their best to put a positive spin on the outcome, with the Qatari minister insisting that the group needed more time to finalize a deal
and that improving fundamentals removed some of the immediate urgency. Nigeria’s oil minister also indicated that the group would reassemble again around the June OPEC meeting to try to craft a compromise. However, unless Saudi Arabia or Iran has a change of heart, we fail to see how the outcome will be any different, and it may ultimately be mounting supply disruptions in stressed states, rather than collective cartel action, that causes an accelerated market rebalancing.
Crude oil prices drop
See the following visualizations which highlight production and price figures regarding the failed OPEC meeting.
Crude Oil Production in OPEC Countries