prices slide after freeze deal failure
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[April 18, 2016]
By Libby George
LONDON (Reuters) - Oil prices slid on
Monday after a meeting between major producing nations on a proposed
output freeze fell apart, leaving the world grappling with an excess of
The some 18 oil exporting nations, including non-OPEC Russia, had
gathered in the Qatari capital of Doha for what was expected to be
the rubber-stamping of a deal to stabilize output at January levels
until October 2016.
But the deal crumbled when OPEC heavyweight Saudi Arabia demanded
that Iran join in despite its repeated assertions it would not do so
until it had reached pre-sanctions levels of output.
"Saudi Arabia intentionally torpedoed the agreement and was willing
to accept its failure. This has severely damaged the credibility of
oil producers in general and of OPEC in particular," Commerzbank
said in a note.
Brent crude futures fell almost 7 percent in early trading on Monday
before recovering to $41.80 per barrel at 1047 GMT (0547 EDT), down
just over 3 percent since their last settlement.
Traders said an oil worker strike in Kuwait that cut the country's
crude output by some 60 percent prevented Brent from tumbling below
$40 per barrel. A cut in U.S. drilling down to 2009 levels had
prevented steeper falls there.
Benchmark U.S. crude futures were down by 3.62 percent at $38.90 a
barrel after falling as low as $37.61 earlier in the day.
Brent crude had reached a four-month high of just under $45 per
barrel last week on hopes that the freeze deal would slow ballooning
Its collapse revived some fears that government-controlled producers
will ramp up their battle for market share by offering ever-steeper
Morgan Stanley said the failure sparked "a growing risk of higher
OPEC supply," especially as Saudi Arabia threatened it could hike
output following the failed deal.
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It could also impact the broader economy, thus putting demand at
"In the near-term, lower oil prices are bound to weigh on investor
confidence and could exacerbate financial volatility," said Frederic
Neumann, co-head of Asian economics research at HSBC.
"Concerns over financial stability in the energy sector and a
further fall in drilling capex are headwinds to growth against an
already fragile global economic backdrop."
But others said OPEC's failure to act, and the subsequently lower
oil prices, would simply shift rebalancing away from the cartel and
towards higher cost producers.
"Once again the Saudis have delivered a hammer blow to fellow
producers," said David Hufton, managing director of broker PVM. "It
promises to be the final nail in the coffin for those shale
producers and their lenders hanging on for a short-term price
(Additional reporting by Henning Gloystein in Singapore, editing by
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