Crude-oil prices tumbled more than 5% in late Asia trading Monday after a failure by key producers to negotiate a production freeze fueled worries about a delayed recovery for prices.

The failed attempt to implement a coordinated production freeze between Russia and members of the Organization of the Petroleum Exporting Countries over the weekend dashed hopes for tighter supply in the market in the near term, analysts said.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in May recently traded at $38.14 a barrel, down $2.22 or 5.5% in the Globex electronic session. June Brent crude on London's ICE Futures exchange fell $2.49 or 5.8% to $40.61 a barrel.

The sharp decline for oil spilled over to Asia-Pacific stocks. Energy stocks in and Australia were last down 2.9%. In Australia, BHP Billiton Ltd. and Rio Tinto Ltd. were off 2.7% and 1.1%, respectively. In Hong Kong, state-owned oil producer PetroChina Co. was down 2.3%.

Over the weekend, Russia and heavyweight producers from the Organization of the Petroleum Exporting Countries walked away from a much-anticipated meeting without reaching a decision. The group gathered to discuss a production cap to limit output at January's levels as a way ease global oversupply.

The main hurdle behind the breakdown was Saudi Arabia's refusal to participate in the deal without Iran pledging to do the same. Since economic sanctions against Iran were lifted in January, the country has vowed to keep ramping up production until output returns to at least 4 million barrels a day.

While market investors largely expected Sunday's outcome, the prospect of a larger glut at a time when demand growth is likely to slow doesn't help sentiment.

Morgan Stanley now expects that a greater risk of a "full scale market share battle" could derail expectations of a recovery in 2017.

"If Saudi Arabia were to lift production from 10.2 million barrels a day currently to above 11 million barrels as threatened, (along with no restraint from other members), rebalancing could be pushed all the way into 2018," the bank said.

Oil prices plunged by more than 6% in the opening hour of Asia trade, but quickly pared losses when investors switched focus to declining production for non-OPEC producers such as U.S., Mexico, China, and Russia, said Peter Lee, a BMI Research analyst, who expects Brent prices to fall below $40 a barrel in the near term.

Crude production there is expected to fall to an average of 8.6 million barrels a day in 2016 and 8 million barrels a day in 2017, according to the U.S. Energy Information Administration.

"Now it is a question of speed to see if the rate of U.S. production decline can offset the growth in OPEC production. If not, the oversupply will linger longer and prices will stay depressed," said Nelson Wang, a CLSA energy analyst.

Going forward, analysts say the latest failure to forge a consensus within OPEC gives little hope for what will happen at the scheduled June OPEC meeting.

"We struggle to see how the outcome will be any different unless Saudi Arabia or Iran has a change of heart," said Helima Croft, the global head of commodity strategy at RBC Capital Markets.

Write to Jenny W. Hsu at jenny.hsu@wsj.com

 

(END) Dow Jones Newswires

April 18, 2016 03:55 ET (07:55 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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