Investors continued to unload oil on Wednesday, with losses building after Saudi Arabia dismissed the possibility of a production cut, effectively extending the time it will take for the market to be balanced again.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in April CLJ6, -3.11% traded at $30.88 a barrel, down 3%, or $1 in the Globex electronic session. April Brent crude LCOJ6, -2.07% on London’s ICE Futures exchange fell $0.74, or 2.2%, to $32.53 a barrel.
Saudi Arabia oil minister Ali al-Naimi on Tuesday said “there is no sense in wasting our time seeking production cuts,” reiterating that a production freeze would gradually allow inventories to fall.
Last week, oil prices rallied after Saudi Arabia, and other oil majors Russia, Qatar and Venezuela, agreed to cap their future productions at the January levels in a bid to support prices. However, hopes that the global glut would ebb quickly dimmed, and prices weakened after Iran rebuffed the pact.
Tehran has repeatedly said it will not consider a supply reduction until its production has climbed back to its pre-sanction level, which was around 4 million barrels a day. Iran is currently producing just under three million barrels a day.
“This is more like a joke that they tell us they would freeze their production above 10 million barrels a day and that we should also in turn freeze our production,” said Iranian oil minister Bijan Zangeneh on Tuesday, quoted by Iranian media.
The comment represented Iran’s most forceful public repudiation of the freeze proposal.
“This is more like a joke that they tell us they would freeze their production above 10 million barrels a day and that we should also in turn freeze our production.”
Without Iran’s commitment to freeze production, the fate of the plan remains uncertain. The parties which had agreed said they would go along with the plan only if other producers were also on board.
Analysts say given that Saudi Arabia and Russia both produced at high levels in January, while Iran has just barely been given the green light to export more broadly, “it is reasonable for Iran to refuse the freeze as their productions have been hamstrung by the sanctions for so long,” said Vyanne Lai, an energy analyst at National Australia Bank.
On Wednesday, Iraq’s governor told OPEC its members should act promptly to rebalance crude oil markets or the damage could be deeper and take time to be fixed.
“OPEC has [been] recently focusing on market share rather than defending the price and this gave the organization the big role in reshaping the structure of the global oil and gas industry,” Faleh al-Amri said at an energy conference in Abu Dhabi.
Oil prices have been battered by oversupply and slower demand growth for nearly two years. Waning profitability has made it uneconomical for many high-cost producers, especially those in North America, to keep pumping. As a result, U.S. production has slowly declined and many market observers say a reduction in U.S. shale supply would the factor leading to a revival of prices in coming months.
“However, the key question is if other traditional sources wait out the pain and whether lower U.S. shale production will be enough to lift prices amid expectations of increased supply from the likes of Iran and Iraq,” said ANZ Research in a note.
Traders will be taking cues from the weekly U.S. crude stockpiles data scheduled for release Wednesday. The American Petroleum Institute, an industry group, said late Tuesday that its own data for that week showed a 7.1-million-barrel rise in crude supplies, a 569,000-barrel increase in gasoline stocks and a 267,000-barrel decrease in distillate inventories, according to market participants.
— Benoit Faucon and Nicole Friedman contributed to this article.
{loadposition user99}