A deal to freeze oil output by OPEC and non-OPEC producers fell apart on Sunday after Saudi Arabia demanded that Iran join in despite calls on Riyadh to save the agreement and help prop up crude prices.
The development will revive oil industry fears that major producers are embarking again on a battle for market share, especially after Riyadh threatened to raise output steeply if no freeze dealwere reached.
Iran is also pledging to ramp up production following the lifting of Western sanctions in January, making a compromise with Riyadh almost impossible as the two fight proxy wars in Yemen and Syria.
Saudis Demand Iran Join Oil Deal
Some 18 oil nations, including non-OPEC Russia, gathered in the Qatari capital of Doha for what was expected to be the rubber-stamping of a deal – in the making since February – to stabilise output at January levels until October 2016.
But OPEC’s de facto leader Saudi Arabia told participants it wanted all members of the Organization of the Petroleum Exporting Countries to take part in the freeze, including Iran, which was absent from the talks.
Tehran had refused to stabilise production, seeking to regain market share post-sanctions.
Russia Calls Saudi Demand ‘Unreasonable’
After five hours of fierce debate about the wording of a communique – including between Saudi Arabia and Russia – delegates and ministers announced no deal had been reached.
“We concluded we all need time to consult further,” Qatar’s energy minister Mohammed al-Sada told reporters. Several OPEC sources said if Iran agreed to join the freeze at the next OPEC meeting on 2 June, talks with non-OPEC producers could resume.
Russian oil minister Alexander Novak called the Saudi demand “unreasonable” and said he was disappointed as he had come to Doha under the impression that all sides would sign the deal instead of debating it.
Novak said Russia was not shutting the door on a deal but the government would not restrain output for now.
Russia is a key ally of Iran and has been defending Tehran’s right to raise output post-sanctions while also supporting the Islamic Republic in many of its conflicts with Riyadh.
Will This Halt the Recovery in Crude Prices?
The failure to reach a global deal could halt a recent recovery in oil prices.
In December, OPEC failed to agree on output policy for the first time in years after Iran disagreed over a production ceiling proposed by Saudi Arabia, arguing again that it wanted to boost output post-sanctions.
Brent oil has risen to nearly $45 a barrel, up 60 percent from January lows, on optimism that adeal would help ease the supply glut that has seen prices sink from levels as high as $115 hit in mid-2014.
With no deal today, markets’ confidence in OPEC’s ability to achieve any sensible supply balancing act is likely to diminish and this is surely bearish for the oil markets, where prices had rallied partly on expectations of a deal. Without a deal, the likelihood of markets balancing is now pushed back to mid-2017. We will see a lot of speculators getting out next week.Abhishek Deshpande, Natixis oil analyst
Gary Ross, the founder and executive chairman of New York-based consultancy PIRA, said the failure to reach a deal was negative but would not have a long-lasting impact.
Saudi Arabia has taken a tough stance on Iran, the only major OPEC producer to refuse to participate in the freeze.
Deputy Crown Prince Mohammed bin Salman told Bloomberg that the kingdom could quickly raise production and would restrain its output only if Iran agreed to a freeze.
Iran’s oil minister Bijan Zanganeh said on Saturday OPEC and non-OPEC should simply accept the reality of Iran’s return to the oil market: “If Iran freezes its oil production ... it cannot benefit from the lifting of sanctions.”