Major oil-producing countries failed on Sunday to reach an agreement on limiting output, renewing fears that the crude-price collapse that has heaped pain on economies from the Middle East to Canada will persist.
Officials from 16 countries, led by Saudi Arabia and Russia, met in Doha, Qatar, in hopes of co-ordinating an effort to freeze output at January levels as a way to support prices. Crude slumped well below $30 (U.S.) a barrel early this year from more than $100 in mid-2014. As feared, the insurmountable hurdle proved to be Iran, which had resisted any limits and skipped the meeting. The Organization of the Petroleum Exporting Countries member is ramping up production to resume shipments abroad following the end of years of international sanctions.
Saudi Arabia had insisted on Iran joining the pact. Ministers and delegates ended the gathering 10 hours after its scheduled conclusion, saying they needed more time to hammer out a deal. They plan to meet again in June.
The lack of alignment among the most influential producers is expected to hit crude markets on Monday, and threatens to stem a recent rebound in Canadian energy shares. U.S. benchmark crude had climbed nearly 60 per cent from February lows to nearly $42 a barrel, partly on hopes of some agreement – even if it didn’t initially mean actually reducing bloated supplies.
“Although most investors we spoke to leading up to Doha had low expectations, the failure to reach an agreement will likely take some momentum out of the recent energy rally,” said Jeremy McCrea, an analyst at Raymond James in Calgary.
Investors are wary, with Canadian banks currently reassessing oil companies’ credit lines based on the outlook for crude. Any big drop will heap additional financial pressure on those with high debt loads and poor profit margins, Mr. McCrea said.
Canada did not participate in the Doha talks, but the global oil diplomacy has a major impact on the domestic economy and those of its energy-producing provinces. Last week, Alberta delivered a budget with $10.4-billion (Canadian) in red ink, a deficit driven by an 84-per-cent drop in non-renewable resource revenue in the past two years. The Alberta economy is reeling after the energy sector slashed spending and cut tens of thousands of jobs.
Newfoundland, meanwhile, was forced to hike taxes across the board and cut public-sector jobs to wrestle down its deficit to $1.8-billion for 2016-17, as royalties from offshore oil projects dwindle.
The global oversupply in crude is estimated at 1.5 million barrels a day, which is equal to about 40 per cent of Canada’s total output. So even if a freeze deal had been reached, prices may have gained on sentiment more than as a result of serious action to combat the glut.
The lengthy trough in prices has hit the economies of OPEC members – as well as non-OPEC Russia – hard, prompting the effort that began in February to try to limit output. However, even without a freeze, the gap between supply and demand should shrink in the second half of 2016, said Judith Dwarkin, chief economist at RS Energy Group in Calgary.
The massive pullback in investment in non-OPEC countries, particularly the United States, is already hitting production. North Dakota said last week that output in the state – known for the prolific Bakken shale oil fields – fell in February for the third straight month.
“The market is rebalancing itself, albeit slowly, and eventually the level of supply will again match the level of demand – perhaps by the middle of next year, if not sooner,” Ms. Dwarkin said. “However, anybody who had higher hopes for the freeze gang will be disappointed, which could make for a dip in crude prices when the market opens on Monday.”
Saudi Arabia, the world’s largest producer, has signalled that it is prepared to keep waging its battle for market share, which has led to the painful price collapse.
“If all major producers don’t freeze production, we will not freeze production,” Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman said last week. “If we don’t freeze, then we will sell at any opportunity we get.”
With reports from Bloomberg and Reuters
Editor’s note: An earlier digital version of this story incorrectly stated the estimate for the global oversupply in crude. It is 1.5 million barrels a day, not 1.5 billion. This version has been corrected.
CALGARY — The Globe and Mail (correction included)
Published Sunday, Apr. 17, 2016 9:41AM EDT
Last updated Sunday, Apr. 17, 2016 9:14PM EDT