The global oil market is likely to remain in yet another phase of uncertainty at least until June after geopolitical tension between Saudi Arabia and Iran prevented major oil producing countries to agree on an output freeze to stabilize prices.
A labor strike in Kuwait that cut the country’s supplies by about 60 percent to 1.1 million barrels a day obstructed any sharp price fall, but failure to agree on a cap on output was certain to weigh negatively on oil prices in coming weeks
A deal in Doha by 18 oil exporting countries, including members of the OPEC, would have frozen global oil output to the January level until October and stabilized the oil market which has seen sharp decline in oil prices to as low as $27 a barrel this year from the peak of $115 in 2014.
Prices have plummeted over surplus supplies – 96 million barrels a day as against demand of 94 million barrels – and the current glut is likely to last until the end of 2017.
Countries attending the April 17 meeting were hoping to reach the deal but talks broke down after Saudi Arabia demanded Iran should also freeze the production. Iran had declined to attend the meeting after Saudi Arabia demanded that Tehran’s invitation to Doha talks be canceled. Both countries are supporting opposing forces in conflicts in Yemen and Syria.
But Saudi Arabia, which had earlier agreed to sign the deal without Iran, surprised participants by saying it would not freeze its output until Iran did the same. Tehran has said it will not cap its output until it reaches a pre-sanctions production level. International sanctions were lifted this year after Iran and world powers agreed to curb Tehran’s nuclear program.
Those who attended the meeting account for nearly 50 million barrels a day production while those who stayed away produce 46 million barrels of oil. Besides Iran, other countries which did not attend included USA, China, Canada, Libya, Brazil, Norway and Columbia.
Any sharp decline in prices as a result of the outcome of the meeting was staved off by the labor strike in Kuwait which has cut the global supply more than what the meeting would have achieved.
Oil workers in Kuwait stayed away from the job for the second day on April 18, protesting against cut in salaries and perks as lower oil prices have hurt economies of the Middle Eastern countries which wholly depend on oil.
But what is in store for the oil market in coming days and weeks was betrayed by the rise in oil future as the failed Doha talks have revived fear major oil producers would again resort to high supplies to protect their market share.
The next meeting of the OPEC, of which Iran is the member, is scheduled for June 2 which will provide another chance for the producing countries to discuss the output cut. Non-OPEC members who attended the Doha meeting are likely to agree if OPEN members reached any deal.
In the case of no agreement among producers, the global oil market will witness a new wave of supplies, as Saudi Arabia has threatened to boost supplies by as much as 2 million barrels per day from its c urrent production. Iran has said it wants to raise output by at least 0.5 million bpd. Other countries such as Iraq and Libya could follow suit.
While the global economy has benefited from the low oil prices, some international financial organizations have cautioned any a very long period of low prices could reverse the trend.
Analysts say Americans common man will both save and spend money on account of cheap oil but the United States is unlikely to see any major implication immediately.
