Oil prices plummeted overnight after crucial talks among members of Opec failed to reach a deal on freezing oil production.
Prices of both Brent and WTI crude were down more than five per cent overnight, which in turn pushed down equities, with the FTSE 100 falling 0.7 per cent in the first hour of trading.
The City's view? Not surprised - but also not impressed. Here's how analysts are reacting.
1. The market is plagued by oil tourists
Kit Juckes, Societe Generale:
At some point in the next year, oil prices will be supported as slowly increasing demand catches up with slowly decreasing supply and stock-building comes to an end.
The fact that global oil demand has continued to increase is what separates this commodity from many others but for now, the oil market is plagued by the presence of the rest of us - oil tourists - who drive the price up and down on sentiment about things like the Doha meeting.
2. Iran is the only one that matters
Connor Campbell, Spreadex:
Kicking off rather inauspiciously with Iran confirming it wouldn’t attend on Sunday, the meeting between Opec and some of the world’s biggest oil producers in Doha ended up being effectively worthless. In a cabal-leading move Saudi Arabia, with little incentive to do otherwise, refused to freeze its oil output until its similarly-sized peers did the same.
Yet realistically Iran remains the only country that matters in this oil saga, and until the newly un-sanctioned country agrees to halt its march to greater and greater daily levels of production there isn’t much chance of an Brent Crude-price rescuing deal being implemented.
3. The failure to reach a deal says a lot
Craig Erlam, Oanda:
Sunday’s outcome was a real setback and it appears growing tensions between Saudi Arabia and Iran, not to mention the latter’s late decision not to take part in the talks, was largely behind the collapse in talks.
The inability of the other oil producers to even agree on a loose commitment to freeze output for now says a lot I think. With this now seemingly off the table, at least until the next OPEC meeting in June and probably beyond, I struggle to see what could continue to support oil prices at this levels, even taking into consideration the considerable sell-off overnight. Declining US production may help support prices to an extent but when you factor in Iran’s intention to return to pre-sanction levels, this more than offsets any reduction.
4. Disruption to supply may be oil prices' only saviour
Helima Croft, RBC Capital Markets:
Iran’s decision not to even attend the meeting and its repeated rejection of the freeze likely hardened Saudi’s resolve to stick to its guns. The assembled oil ministers tried their best to put a positive spin on the outcome, with the Qatari minister insisting that the group needed more time to finalise a deal and that improving fundamentals removed some of the immediate urgency.
Nigeria’s oil minister also indicated that the group would reassemble again around the June OPEC meeting to try to craft a compromise. However, unless Saudi Arabia or Iran has a change of heart, we fail to see how the outcome will be any different, and it may ultimately be mounting supply disruptions in stressed states, rather than collective cartel action, that causes an accelerated market rebalancing.
5. Tensions go deeper than oil
James Huges, GKFX:
The tensions between Iran and Saudi Arabia go deeper than just that of agreeing on oil output, the two nations compete for power in the Middle East and are already fighting unofficial conflicts with each other in areas of Syria and Yemen.
The failure to reach a deal is expected to have a huge negative impact on the downside for oil prices, after many expected the major stumbling blocks to come from the Russian side. The bearish catalyst could well see oil prices tumble more than the initial fall back to $38, with Goldman’s predicting an average price of $35 a barrel for the year. Any decline is likely to have a knock on effect on world indices, with us already looking at a negative start in Europe.