Oil prices slid on Monday after a meeting between major producing nations on a proposed output freeze fell apart, leaving the world grappling with an excess of unwanted crude.
Oil exporting nations, including non-OPEC Russia, had gathered in the Qatari capital of Doha for what was expected to be the rubber-stamping of a deal to stabilise output at January levels until October.
But the deal crumbled when OPEC heavyweight Saudi Arabia demanded that Iran join in despite its repeated assertions it would not do so until it had reached pre-sanctions levels of output.
“Saudi Arabia intentionally torpedoed the agreement and was willing to accept its failure. This has severely damaged the credibility of oil producers in general and of OPEC in particular,” Commerzbank said in a note.
Brent crude futures LCOc1 fell almost 7 percent in early trading on Monday before bouncing back to $41.70 per barrel at 1335 GMT, down 3.35 percent since their last settlement.
Traders said an oil worker strike in Kuwait that cut the country’s crude output by some 60 percent prevented Brent from tumbling below $40 per barrel. A cut in U.S. drilling down to 2009 levels had prevented steeper falls there.
Benchmark U.S. crude futures CLc1 were down by 3.62 percent at $38.90 a barrel after falling as low as $37.61 earlier in the day.
On Monday, Iran urged other oil producers to continue efforts to prop up prices, but insisted it was justified in not yet freezing its own output following the lifting of sanctions in January.
The deal’s collapse revived some fears that government-controlled producers will ramp up their battle for market share by offering ever-steeper discounts.
Morgan Stanley said the failure sparked “a growing risk of higher OPEC supply,” especially as Saudi Arabia threatened it could hike output following the failed deal.
Still, supply disruptions elsewhere, such as in OPEC member Nigeria, helped underpin prices. Investment bank Goldman Sachs said “gradually declining non-OPEC production as well as planned maintenance in the face of resilient oil demand in Q1 have recently pointed to improving oil fundamentals.”
Additionally, analysts said OPEC’s failure to act, and the subsequently lower oil prices, would simply shift rebalancing away from the cartel and towards higher cost producers.
“Once again the Saudis have delivered a hammer blow to fellow producers,” said David Hufton, managing director of broker PVM. “It promises to be the final nail in the coffin for those shale producers and their lenders hanging on for a short-term price reprieve.”