As (accurately) predicted earlier today in Scottish Energy News, crude oil prices slumped by as much as 7% to around $41.70-barrel in early trading yesterday as markets digested the failure of the Sunday oil summit in Doha to agree a production freeze.
But a strike by workers in Kuwait – which cut its output by more than 50% – steadied markets and crude oil prices ended the day virtually flat.
However, while the Kuwaiti oil workers’ strike will doubtless be resolved in the short-term, the fundamental disagreement between Saudia Arabia to agree to any deal that does not involve Iran will continue to dominate market sentiment over the summer as demand falls as temperatures rise in Europe and North America.
Major oil producers from the Organisation of the Petroleum Exporting Countries and non-OPEC-member Russia failed to reach agreement on a plan to freeze output after Saudia Arabia – the dominant player in OPEC – demanded unsuccessfully that Iran join the plan. After years of sanctions – including a ban on oil exports – over its nuclear strategy, Tehran is desperately in need of petro-dollars and is keen to boost exports to replenish its coffers.
Global crude oil prices first started plummeting from the Summer 2014 highs of more than $110-barrel after Saudi Arabia increased production volumes in a price war to drive higher-cost producers – such as US shale firms – out of the market.
However, the US shale producers – aided by recent developments in oil drilling technology – proved more resilient than Riyadh realised and kept on pumping even as prices plummeted, further screwing prices downwards.
While economic fall-out from the ‘Doha deal’ is expected to depress prices towards $40-barrel again, the market may not tumble as much as it did earlier this year, when Brent hit 12-year lows of around $27 in late January, some analysts 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,” said analysts at Goldman Sachs in a note, referring to the first quarter.