Bad news for Nigeria as efforts to save the crude oil price from further plunging in future fell apart yesterday at a meeting conveyed in Doha, capital of Qatar, due largely to tensions between rivals Saudi Arabia and Iran. Iran stayed home and has vowed to increase its output despite threats from Saudi Arabia.
Buoyed by the positive talks preceding the Doha summit, oil prices, which hit a 12-year low in January after dropping below $30 a barrel, had risen above $40 in recent days.
But instead of a approving a much needed production freeze, the meeting of 18 oil-producing nations turned into hours of debate and resembled the dysfunction of an unsuccessful meeting of the Organization of the Petroleum Exporting Countries in December that sent oil prices tumbling.
But the meeting reached a “no deal” and was postponed to June 2, 2016, after Saudi Arabia insisted it wanted all OPEC members, including Iran, to take part in the freeze or there would be no deal.
As oil producers couldn’t agree to a freeze, let alone a production cut, there is a likelihood of oil prices dropping again as markets open Monday.
“Prices will trade lower. Maybe sharply lower,” said Robert Yawger, director of energy futures at Mizuho Securities USA, noting the failure to reach agreement in Doha.
He observed that other factors were negatively impacting oil prices – U.S. crude oil storage remaining at all -time highs, Iran increasing production, and Libya looming on the horizon to boost output.
Speaking to journalists after the summit, Mohammed bin Saleh al-Sada, Qatar’s energy and industry minister, tried to say the lack of a decision showed officials believed “the fundamentals of the market are generally improving.”
“We concluded we all need time to consult further,” Qatar’s energy minister, Mohammed al-Sada, told reporters, as several OPEC sources said if Iran agreed to join the freeze at the next OPEC meeting on June 2, talks with non-OPEC producers could resume.
The Iranians decided to abstain from the meeting late Saturday after saying the day before it would send an emissary to the meeting. Speaking to Iranian state television, Oil Minister Bijan Namdar Zangeneh said it didn’t make sense to send any representative from the Islamic Republic “as we are not part of the decision to freeze output.”
“We can’t co-operate with them to freeze our own output, and in other words impose sanctions on ourselves,” Zangeneh said.
With many international sanctions lifted under its nuclear deal with the U.S. and other world powers, Iran began exporting oil into the European market again and is eager to claw back market share. It produces 3.2 million barrels of oil a day now, with hopes of increasing to 4 million by April 2017.
A senior oil industry said, “The problem now is to come up with something that doesn’t include Iran, makes the Saudis less threatened and doesn’t upset Russia.”
“If there is no deal today, it will be more than just Iran that Saudi Arabia will be targeting. If there is no freeze, that would directly affect North American production going forward, perhaps something Saudis might like to see,” Abhishek Deshpande, Natixis oil analyst told Reuters.
Ahead of the meeting, Brent crude had risen to nearly $45 a barrel, up 60 per cent from January lows of about $26, due to optimism that a deal would help ease the supply glut that has seen prices sink from levels as high as $115 hit in mid-2014.
Saudi Arabia has taken a tough stance on Iran, the only major OPEC producer to have refused to participate in the freeze. The Kingdom’s Deputy Crown Prince, Mohammed bin Salman, told Bloomberg that it would restrain its output only if Iran agreed to a freeze.
Sunni-ruled Saudi Arabia had said it wouldn’t back any freeze if Iran, its Shiite rival, didn’t agree to it, throwing the deal into question before the meeting. The kingdom seems determined to ride out the low prices that could squeeze Tehran.
The discord between Saudi Arabia and Iran has escalated in recent months.
In January, Saudi Arabia executed a prominent Shiite cleric, a move that sparked protests in Iran that saw demonstrators attack two of the kingdom’s diplomatic posts there. That broke the conflict between the two countries into the open, amid them backing opposing sides in both Syria’s civil war and the war in Yemen.
Interestingly, Iran’s oil minister, Bijan Zanganeh, stated on Saturday that OPEC and non-OPEC should simply accept the reality of Iran’s return to the oil market, maintaining that “If Iran freezes its oil production … it cannot benefit from the lifting of sanctions.”
Data released by the oil cartel on Wednesday showed that Iranian oil production in March was 3.3 million bpd, up from 2.9 million in January, but still short of its pre-embargo level of around 4.0 million, with the country having a capacity to quickly increase production beyond that level.
According to an oil analyst at Natixis, Abhishek Deshpande, “With no deal today, markets’ confidence in OPEC’s ability to achieve any sensible supply balancing act is likely to diminish and this is surely bearish for the oil markets, where prices had rallied partly on expectations of a deal,”
Deshpande added, “Without a deal, the likelihood of markets balancing is now pushed back to mid-2017. We will see a lot of speculators getting out next week.”
Also reacting to the development, analyst at Energy Aspects, Amrita Sen, told Reuters that oil prices could fall below $40 today in reaction to the failed deal.
“While the lack of a freeze deal has no negative impact on balances – since Iran is really the only country likely to raise output substantially – it has a huge negative impact on sentiment especially as the deal had been hyped up so much,” she stated.
And while automobile owners and airlines companies have been enjoying low oil prices, the plunging oil revenues have wreaked havoc on countries like Nigeria and Venezuela, both of which attended Sunday’s meeting along with non-OPEC member Russia.
A positive outcome, in the form of an output freeze, could have accorded Nigeria the opportunity for a slight increase in oil price if everything had gone smoothly at the end of the meeting.
