Saudi-Iranian dispute scuppers oil accord in Doha
Beirut - Eighteen oil ministers arrived in Doha expecting to a short meeting to approve an already prepared resolution calling for a freeze of production among Organisation of the Petroleum Exporting Countries (OPEC) and non- OPEC producers. However, a last-minute demand by Saudi Arabia that Iran join in the agreement dissipated hopes that an accord would be reached.
Iranian Oil Minister Bijan Zanganeh had already refused to freeze the country’s oil production until it is back to the pre-sanctions level of 4 million barrels per day. Iran declined at the last minute to send a delegation to Doha.
Oil ministers ended their April 17th meeting after a few hours of consultations. The draft accord they discussed proposed to keep output at January levels until at least October. They expected such a deal would force prices to $50 a barrel by year-end, compared with the current $35-$45 a barrel.
Russian Oil Minister Alexander Novak after the meeting said Moscow was not closing the door on a global deal to save the agreement to support prices. A Russian-Saudi understanding in February evoked optimism in international oil markets that an agreement could be reached, despite Iran’s refusal to freeze production.
Novak said that he travelled to Doha expecting all participants to sign the agreement. He said the deal fell apart because Saudi Arabia demanded that Iran join in and that this was “unfortunate” because Iran decided not to participate in the talks. The Russian account was reiterated by other oil ministers at the meeting.
Market observers did not expect a large price rise even if the Doha meeting produced an agreement. The day before the meeting, Iran’s Oil Ministry said it would not send a representative to Doha. Earlier, Saudi Deputy Crown Prince Mohammed bin Salman bin Abdulaziz said Riyadh would not hold out on its oil output unless other producers, including Iran, did the same.
Barclays said in a note to clients that “the much-awaited meeting exposed the political rift between Saudi Arabia and Iran, and ultimately doomed the agreement.” The conference failure sent crude prices tumbling.
Barclays added: “This meeting and its outcome should have built confidence that the oil market rebalancing was close at hand, as well as building a circle of trust among producers for possible future cooperation and coordinated action.”
Gary Ross, executive chairman of New York-based oil consultancy PIRA, said: “The failure is negative from the psychological point of view. It shows the inability of all sides to cooperate.”
Muhammad bin Saleh al-Sada, OPEC president and Qatar’s oil minister, said the group “needs more time” to construct a deal to freeze output. He cited “improved fundamentals” as a reason why an immediate agreement was not necessary.
Market observers do not foresee crude oil production rising. Most countries have been producing at capacity and any new development would need additional investments. Banks are reluctant to lend for such ventures, especially with continuing low prices. Oil revenue has been slashed by half, leaving many countries with little funds to spend on increasing production. Crude oil storage facilities, both onshore and tankers, are full.
Analysts did not expect that a production freeze would do much to reduce the world’s oil glut. A modest Doha accord among producers was expected to assist producing countries to buy time until the oil market stabilises. The February Doha meeting, resulting in a Saudi-Russian understanding to freeze production to January levels raised expectations that oil prices would rise to $50 a barrel by year-end.
Daniel Yergin, vice-chairman of IHS, told CNBC: “There’s a lot of rhetoric, a lot of statements around the oil market but the fundamental thing you have to look at is money. It’s revenue and the revenues of these countries that export oil have really collapsed.
“In 2014, OPEC revenues were about a trillion dollars. Last year, they were half a trillion dollars. This year they’re on a course to be down another 20%,” said Yergin, “This creates inordinate pressure on governments. Very difficult choices have to be made. Budgets have to be cut; credit ratings go down. There is a risk of social turmoil and problems. I think that is really weighing on producers, forcing them to find some way to stabilise things.”