Failure to proceed with crude output freeze plan seen as a "serious blow" to oil-market sentiment by Energy Aspects; Barclays expects mounting tensions between Saudi Arabia and Iran to boost volatility. Separately, Kuwait oil workers strike viewed as price-supportive. Here, courtesy of Bloomberg, is a summary of what analysts have said so far on meeting’s outcome as well as comments on Kuwait:
Barclays analysts including Miswin Mahesh
- Meeting was a “complete failure” in terms of building trust among producers regarding future action; shows how hard it would be to ever coordinate production cuts; Event exposed “political rift” between Saudi Arabia and Iran
- “The uncertainty in the market with regards to the next meeting and the developing geopolitical backdrop with regards to Iran and Saudi Arabia, will continue to lead to oil market volatility”
- Also says that a protracted oil-worker strike in Kuwait would tighten physical oil markets significantly
Energy Aspects analysts including Amrita Sen
- Failure of talks is “serious blow” to sentiment even if freezing would have had little impact on supply/demand balances
- Though prices may slip below $40/bbl in “knee-jerk reaction” Monday, selloff could be mitigated by news of Kuwaiti output losses
- Saudi demands over Iran’s participation in any potential freeze deal “hints at influence from either domestic or regional politics”
Morgan Stanley analysts including Adam Longson
- Saudis can push oil market rebalancing to 2018; Morgan Stanley sees growing risk of higher OPEC supply amid lack of agreement
- Rebalancing seen in 2018 if Saudi Arabia boosts output to >11m b/d as “threatened”
Bloomberg First Word strategist Julian Lee
- Saudi Arabia won’t shed tears over breakdown of talks; Surge in supplies from Iran, Iraq just before meeting gave Saudi Arabia perfect excuse to refuse to freeze its own output
- Saudi Arabia probably didn’t want oil price to go much higher since that might encourage return of higher-cost production
Goldman Sachs analysts including Damien Courvalin
- Outcome bearish because consensus was for “soft guidance” on a freeze at Jan. levels
- Kuwait oil worker strike is bullish; “can lend further support to the recent strength in Brent and Dubai timespreads”
BMI Research analyst Peter Lee
- While outcome of meeting may sustain negative sentiment, supply/demand fundamentals unchanged
- Meeting’s outcome wasn’t a surprise
JPM's Early Look at the markets
- The Doha deal collapse really isn’t as notable as its being made out to be given Iran and Libya were never going to participate and of the remaining countries only Saudi Arabia actually has the capacity to increase output (and there aren’t any indications it is planning to do so).
- Meanwhile, a strike in Kuwait (announced Sun) will cut that country’s output by >1MM BPD for the time being.
- The months-long oil rebound has been helped in part by the freeze whispers from OPEC and Russia but the material decline in US production has played just as important a role (and actually while the lack of agreement Sun reflected the widening cold war between Riyadh and Tehran, it was prob. motivated also by a desire to ensure the US shale industry stays disciplined).
- While oil prob. won’t set fresh highs for the time being, Brent should hold the high-$30s. In addition to Doha/oil, the other big weekend news involved Brazil (the lower house voted to impeach Rousseff by a larger-than-expected margin) and Japan (the country suffered a series of earthquakes in the last few days while the int’l community expressed little sympathy for Tokyo’s strong yen problems).
Source: BBG