Saudi failure to freeze oil output leaves Opec exposed
A deal to freeze oil output by OPEC and non-OPEC producers fell apart on Sunday, leading to a steep drop in oil prices towards $40 yesterday before a late recovery. Below are the key facts, questions and answers about the meeting:
What were the Doha talks trying to achieve?
Some 18 oil nations including OPEC's leader Saudi Arabia and top non-OPEC producer Russia had been expected to rubber-stamp a deal - in the making since February - to stabilise output at January levels until October 2016.
Russian oil minister Alexander Novak had said the deal would help balance supply and demand in the market by the end of 2016. Without it, the market would struggle to work through the current glut until the end of 2017, he said.
Why did the talks fail?
Iran argued it could not join the freeze because it needs to regain production levels after the lifting of international sanctions. The sanctions were lifted after Iran and the group of world powers known as the P5+1 agreed on curbs to Tehran's nuclear program.
Saudi Arabia, which had signalled it was willing to sign the deal without Iran, surprised participants last week by asking that Iran's invitation to the Doha talks be cancelled. Iran responded by saying it was happy not to attend.
On Sunday, however, Saudi Arabia came up with a second surprise by demanding that Iran join the freeze. Talks then fell apart.
"(Saudi oil minister Ali) Al-Naimi will have lost credibility with Russia and will have as well upset other OPEC and Gulf countries," said Olivier Jakob, analyst from Petromatrix.
What are the implications for oil markets?
The failure of talks has revived oil industry fears that major producers are going back into a battle over market share that has already driven prices to as low as $27 per barrel in January from highs around $115 in mid-2014.
Saudi Arabia's top oil official, Deputy Crown Prince Mohammed bin Salman, threatened last week to raise output by as much as two million barrels per day (bpd) from the current levels if the deal freeze was not reached by all members.
That would amount to more than 2pc of global supply and significantly exacerbate the glut. Iran also wants to raise output by at least 500,000 bpd. Iraq and Libya could also add barrels to the market.
What are the implications for the global economy?
Low oil prices have helped the global economy but some international financial organisations have warned that a very prolonged period of low prices could damage global growth.
Both the IMF and the US Federal Reserve are growing impatient with the low oil price, according to Jakob.
"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," said Frederic Neumann, co-head of Asian economics research at HSBC.
What are the political implications?
Arch-rivals Saudi Arabia and Iran have been fighting a number of proxy wars in the Middle East, including in Syria and Yemen. Russia supports its strategic ally Iran in many of its conflicts in the region.
With oil prices set to fall, tensions look like they can only rise further. (Reuters)