Five questions in the wake of Doha

Talks between some of the world’s biggest oil producers on a deal to freeze output collapsed on Sunday evening after Saudi Arabia insisted Iran, a fierce regional rival, be part of any agreement. Here are five questions oil market participants will now be asking.

How far will the price of oil fall?

Crude oil has jumped more than 40 per cent since mid-February when Saudi Arabia, Russia, Venezuela and Qatar first announced plans for an output freeze. While other factors have played a part in driving prices back above $40 a barrel there’s no doubt the prospect of the first global oil deal in 15 years was a key driver.

As such, there is likely to be a negative price reaction when markets open on Monday. Analysts at Citi told their clients on Friday to brace for a sharp oil market decline if the Doha talks were to end with no agreement. Brent, the international oil marker, will probably retest $40 a barrel.

But it is also worth remembering that a deal in Doha would not have reduced global supplies — just frozen them at high, and in some cases, record levels.

“The freeze between other producers would have made no real difference to balances as we believe, apart from Saudi Arabia, Russia and Iran are the only two countries among those involved in the freeze talks that will be able to increase production this year,” said analysts at Energy Aspects, a London-based consultancy.

So the impact may not be severe. The market could also find support from Kuwait, where oil workers started strike action on Sunday. This will add to global supply disruptions, which already stand at almost 2.8m barrels a day — near a two-year high — according to Energy Aspects.

Why did Saudi Arabia change tack?

This is probably the most important question that needs answering.

Although there were mixed messages in the run-up to the meeting, senior Opec delegates were confident Saudi Arabia would back a deal even without the involvement of Iran.

The ministry of petroleum and mineral resources, led by Ali al-Naimi, was said to have been involved in the first draft of the agreement that was circulating among delegates in Doha on Sunday.

But something led to Saudi Arabia toughening its stance and insisting that all Opec members, including Iran, back the deal.

A clue might be found in comments made by Saudi Arabia’s powerful deputy crown prince, Mohammed bin Salman. He told Bloomberg last week that the kingdom would not sign up without Tehran, suggesting he had decided against giving any leeway to a fierce regional rival.

“The failure to reach an agreement in Doha is a reminder that Saudi Arabia is in no mood to do Iran any favours right now and that their ongoing geopolitical conflict cannot be discounted as an element of the current Saudi oil policy,” said Jason Bordoff of the Center on Global Energy Policy at Columbia University.

Indeed, this might be the key takeaway from the meeting — the increasing power and influence of the 30-year-old deputy crown prince on oil policy.

What does this say about Opec policy?

Although this was not an Opec meeting, Sunday’s gathering in Doha still highlights the deep divisions in the production cartel - in particular the enmity between Saudi Arabia and Iran, which is emerging from years of sanctions and wants to win back market share.

In the wake of Sunday’s meeting, the organisation is going to struggle to convince the market that it can work collectively to manage supply. That may not matter if, as many analysts and traders believe, the oil market is rebalancing of its own accord as the impact of low prices results in more high-cost production being taken offline. But it does raise questions about the power and influence of the organisation.

How will Iran view the result?

Iran did not even bother to send a representative to Sunday’s meeting and it has maintained a consistent stance in the run-up to the talks: it was not prepared to freeze production because it is only just emerging from years of sanctions that have affected both oil production and exports. Only when it got to those pre-sanction levels and regained market share could Iran begin to think about capping output.

It is unlikely that view has changed in light of Sunday’s events. While Iran has increased output and exports, they are still not at pre-sanction levels. The International Energy Agency estimates exports of Iranian crude oil rose to 1.6m barrels a day in March — up around 100,000 b/d from February. Before sanctions were tightened in mid-2012, Tehran was selling roughly 2.2m b/d of crude on world markets.

What happens next?

Mohammed Bin Saleh Al-Sada, Qatar’s energy minister, was spinning furiously on Sunday evening, telling journalists there was less pressure to reach an agreement immediately because oil was “heading in the right direction”.

“We all need time for further consultation … from now until the June Opec meeting,” he said.

While they may try to put together another round of talks later in the year it looks to be a tough proposition. Some of the producers who attended the talks are clearly disappointed by the failure to reach a deal given the level of back channel communication and preparations ahead of the meeting.

Russia’s oil minister Alexander Novak said he was surprised when “some Opec members” put forward new demands on Sunday morning.

If there is a sharp sell-off in oil markets on Monday, will big producers such as Russia really be willing to risk a rerun of Doha given the enmity that clearly exists between Opec members Iran and Saudi Arabia? We will have probably have to wait until the next Opec meeting in June to see how the land lies.

“Given the likelihood that the price will move down, many ministers may find themselves wishing they had stayed home,” said Jamie Webster, an independent oil analyst. “This effort was always a bridge too far, but some were hoping for at least some progress, a view that now must seem an error.”