Monday, April 18, 2016

Oil: Analysts React To The Doha Failure

Brent $41.62 down $1.48; Soon to be gone May WTI $38.75 down $1.61.

First off, FT Alphaville's Markets Live:

With his decision to double down on the demand for full Iranian participation in a freeze
agreement, Saudi Arabia’s de-facto ruler Mohammad bin Salman (MBS) proved to be the
ultimate disruptor at Sunday’s much anticipated meeting of sovereign producers in Doha. Saudi Arabia stood firm despite the determined efforts of its key GCC allies such as Qatar and Kuwait, which normally stand shoulder to shoulder with the Kingdom on oil policy, to forge an agreement to freeze output at January levels irrespective of Iranian involvement. 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 minsters tried their best to put a positive spin on the outcome, with the Qatari minister insisting that the group needed more time to finalize 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.
We previously suggested that the market’s reaction to the Doha meeting would hinge not only on a potential agreement but also on whether or not the group is able to control the rhetoric coming out of the meeting. While the market arguably had few expectations for an incrementally bullish outcome, the inability of the group to convey a position of strength points to prices kicking off the Monday session on a weaker footing. The post-Doha initial knee-jerk reaction lower is expected, but we expect prices to find support in the mid-$30/bbl range given an otherwise improving fundamental backdrop. The inability to strike a deal is not for lack of trying, so despite calls for further consultation and potential follow-up meetings, this botched attempt at a deal may sterilize the influence on prices leading into future meetings....
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And from ZeroHedge:

Analysts Respond To Doha Meeting Failure: "Blow To Sentiment"
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
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”
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”...