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Category: Economic Trends / Oil and Gas / Stockmarket / Currency

Doha oil deal failure sparks crude price plunge

Monday, 18 Apr 2016 09:25:44 | Thuy Ong

Saudi Arabia has blocked a production freeze with Iran refusing to come to the table. (ABC News)

A deal to freeze global oil output failed to materialise overnight, pushing oil to its biggest one-day loss in two months.

At a meeting in Doha, oil ministers from 16 countries, including Saudi Arabia and Russia, failed to come to an agreement on limiting supply, even after the summit dragged on for ten hours after its scheduled conclusion.

Talks hit a stumbling block after Saudi Arabia's deputy crown prince Mohammad bin Salman said the kingdom would not restrain its production without commitments from other major producers, including Iran, which was not present at the meeting.

Iran had most of its sanctions lifted by the United States and the European Union in January in return for curbs on its nuclear program and has ruled out freezing output for the present time.

"With Saudi Arabia fighting proxy wars with Iran in Yemen and Syria/Iraq, it is understandable that they had little inclination to freeze their own production and make way for newly sanctions-free Iran to increase their market share," said Angus Nicholson, market analyst at IG in a note to clients.

"Given the fairly clear-cut incentive structure for Saudi Arabia it was surprising that the deal looked like such an inevitable affair."

The meeting is the first meaningful attempt in 15 years at coordinating oil output between the Organisation of Petroleum Exporting Countries (OPEC) and those outside the group.

Australian oil companies slump, dollar follows

The news spooked investors on the local share market, with key energy companies Santos and Woodside Petroleum dropping 5.9 per cent and 2 per cent respectively.

The broader ASX 200 was down 0.5 per cent at 5,135.

The Australian dollar, a commodity-backed currency, lost 0.9 per cent to 76.5 US cents at 11:05am (AEST).

The diplomatic failure is a risk to the recent shaky recovery in oil prices, as Brent oil had recovered some 60 per cent from January lows of $US27.10. It fell 5.1 per cent to $US40.92.

The Australian dollar also took a hit from highs around 77.2 US cents to below 76 US cents at one point, before a rebound to 76.7 US cents by 11:24am (AEST).

The International Energy Agency had earlier reported that a production freeze would have at best a limited impact on the glut that has smashed oil prices.

AustraliaPlus


 

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