Oil Prices Fall 5% in Late Asia Trading
April 18 2016 - 4:10AM
Dow Jones News
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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