Crude falls after Doha talks failure, petchem under pressure

SINGAPORE (ICIS)–Crude futures fell sharply on Monday following the failure of the oil producers’ summit in Doha, Qatar, exerting downward pressure on some petrochemicals prices in Asia, market sources said.

At 08:07 GMT, June Brent crude on London’s ICE futures exchange was trading at $41.33/bbl, down by $1.77/bbl from the previous close. Earlier, the North Sea benchmark fell to a session low of $40.10/bbl, down $3.00/bbl.

May NYMEX light sweet crude futures (WTI) were trading at $38.55/bbl, down by $1.81/bbl from the previous close. Earlier, the US benchmark declined to a session low of $37.61/bbl, down $2.75/bbl.

Failure of talks and a tumble in crude put downward pressure on prices of benzene, paraxylene (PX) and butadiene (BD) in Asia, market sources said.

Similarly, petrochemical prices in the Middle East may also decline significantly, or price increases may halt in the region following the oil talks failure, market sources added.

Negotiations to freeze production between a rare meeting between OPEC and non-OPEC producers foundered after Saudi Arabia demanded that all OPEC members including Iran also agree to an output freeze.

Crude prices fell on Monday despite a strike that started on Sunday by Kuwaiti oil workers, which has cut the nation’s production from around 2.8m bbl/day to 1.1m bbl/day according to Kuwait Oil Company.

A deal to freeze production between OPEC and non OPEC producers was first proposed back in February following a tentative agreement between Saudi Arabia, Russia, Qatar and Venezuela.

However, Iran had consistently voiced opposition to such a scheme and did not attend the Doha meeting.

Earlier this month Iran’s oil minister indicated that Tehran would be unwilling to freeze output until the nation’s oil production hit pre-sanctions levels of 4m bbl/day when exports would rise to 2.25m bbl/day. This is not expected to happen until March 2017.

The latest report from the International Energy Agency (IEA) estimated Iranian crude production in March at 3.3m bbl/day, up nearly 400,000 bbl/day since the start of the year before the lifting of nuclear sanctions. 

Plans to raise Iranian production and exports have been hampered to a degree by continued US sanctions which limit Tehran’s access to international financial markets.

Doubts had been expressed about the effectiveness of the proposed production freeze prior to the Doha meeting.

The global crude market is still oversupplied buoyed by output from producers such as Russia, Iraq and Saudi Arabia at or close to record levels.

The IEA had voiced an opinion that; “if there is to be a production freeze, rather than a cut, the impact on physical oil supplies will be limited.”

Crude oil prices had hit new highs for the year last week with ICE Brent surging to an intra-day high of $44.94/bbl on the 13 April.

Prices had been buoyed by expectations of a successful outcome of the producers meeting and forecasts by the IEA that oversupply will drastically diminish in the second half of the year amid signs of an acceleration in the fall in US crude output.

Last week the data from the US Government’s Energy Information Administration (EIA) revealed that US crude production had fallen below 9m bbl/day for the first time since October 2014.

However, the data also reveal a massive 6.6m bbl/day rise in US crude inventories to a new record high of 536.5m bbl .

Despite the fall on Monday, ICE Brent crude prices are still up more than 10% from the start of the year and up more than 50% from the intra-day low of $27.10/bbl hit on 20 January 2016.

Top picture: Global Warming Images /REX/Shutterstock

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

Additional reporting by Tahir Ikram

By James Dennis