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April 18, 2016 8:50 AM, EDT

Oil Drops After Output Talks Fail Amid Saudi Demands Over Iran

Lisi Niesner/Bloomberg News

Oil fell after output talks April 17 between the world’s biggest producers ended without any agreement on limiting supplies, a diplomatic failure that threatens to renew the rout in prices.

Futures fell 4.2% in New York, paring an earlier loss of 6.8% — the biggest decline in two months. The summit in the Qatari capital, which dragged on for more than 10 hours beyond its initially scheduled conclusion, finished with no final accord.

There were significant hurdles to any deal after Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman said the kingdom wouldn’t restrain its production without commitments from other major producers including Iran, which has ruled out freezing for now. A strike that reduced Kuwait’s output by 60% entered a second day.

“Nothing has changed in market fundamentals, but any hopes of a coordinated OPEC supply response are now at zero,” David Hufton, CEO of brokers PVM Group in London, said by e-mail. “All of the supply cutbacks necessary to rebalance will have to come entirely from non-OPEC. Once again, the Saudis have delivered a hammer blow to fellow producers, and this promises to be the final nail in the coffin for shale producers hanging on for a price reprieve.”

West Texas Intermediate for May delivery fell $1.69 to $38.67 a barrel on the New York Mercantile Exchange. The contract fell $1.14, or 2.8%, to $40.36 on April 15. Total trading volume was more than two times the 100-day average.

Brent for June settlement retreated $1.62, or 3.8%, to $41.48 a barrel on the London-based ICE Futures Europe exchange. The contract lost 74 cents, or 1.7%, to $43.10 on April 15. The global benchmark was at a $1.41 premium to WTI for June.

Oil ministers from 16 nations, representing about half the world’s output, gathered in Doha in a bid to stabilize the global market, the first significant attempt at coordinating oil output between the Organization of Petroleum Exporting Countries and nations outside the group in 15 years.

Discussions stumbled after Saudi Arabia and other Gulf nations wouldn’t agree to any deal unless all OPEC members joined including Iran, which wasn’t present at the meeting, Russian Energy Minister Alexander Novak told reporters.

“The weekend talks are demonstration that the Saudi government, as the deputy crown prince has clearly stated, doesn’t want to cede market share,” Ed Morse, head of global commodity research at Citigroup Inc., said by phone. “They are fearful that the world may be in a weak or bearish market for a long period of time. In a bear market, as they learned from the 1980s, if they cede market share it is very difficult to get it back.”

Forty traders and analysts surveyed by Bloomberg News last week were evenly split on whether a consensus would be reached, and tensions were visible throughout the negotiations. While analysts doubted that any accord would have a significant impact on the global oil surplus, the group’s inability to agree undermines any prospect of coordinated action to solve the market slump.

Russia was surprised there wasn’t an agreement, said Novak. Officials from Saudi Arabia, Qatar, Venezuela and Russia — who initiated the push for a freeze in February — agreed to a draft accord on April 16, but some countries changed their position right before the summit the following day, leading to “hot discussions,” he said.

“The fact that Saudi Arabia seems to have blocked the deal is an indicator of how much its oil policy is being driven by the ongoing geopolitical conflict with Iran,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University and a former White House official.

Iran, which is reviving oil exports after international sanctions were lifted in January, ruled out any limits on its output before reaching pre-sanctions levels, dismissing the notion of joining the freeze as “ridiculous.” The nation’s Oil Minister Bijan Namdar Zanganeh said April 16 he wouldn’t attend the Doha talks and won’t be a signatory to any deal as it would amount to self-imposed sanctions.

OPEC members will consult among themselves and with other oil producers until June, Qatar’s Energy Minister Mohammed Al Sada said at a news conference after the meeting. The next scheduled bi-annual OPEC meeting is on June 2.

Kuwait’s crude production tumbled by 60% and its refineries scaled back operations as the state oil company took emergency measures April 17 to cope with an open-ended labor strike. Kuwait Petroleum Corp. was working April 18 to resume operations at two crude-gathering facilities, state-run Kuwait News Agency reported, citing oil-industry spokesman Sheikh Talal Al-Khaled Al-Sabah.