Expect heavy sell-off in crude oil as no deal reached

Dubai: More than two months of deliberations between Opec and non-Opec producers resulted in a no deal in Doha on Sunday, and that may disappoint oil traders on Monday.

Analysts  expect another bout of sell-off in crude oil prices, with Brent touching to a low of $38 per barrel. Oil prices have jumped more than 30 per cent after hitting its lowest level in 12 years in mid-January after news of negotiations between Opec and non-Opec producers to stabilise the market even as tumbling US inventories lent support. On Friday, Brent crude traded at $43.10.

“After witnessing recovery since January, brent prices will probably will see heavy sell off and the downward trend may prevail,” Naeem Aslam, chief market analyst with AVA Trade told Gulf News. Oil prices have fallen more than 70 per cent since 2014 amid concerns of a supply glut.

Rebalancing

Though oil prices may witness a sell-off as a knee-jerk reaction to the event, but are likely to recover in the short-term.

“Oil price is not being set by the men sitting down in Doha today but by the shale oil producers in the US,” Ole Hansen, head of commodity strategy at Saxo Bank said. 

Production in North Sea, Iraq and Nigeria has been shrinking. Nigeria is producing the least crude since 2009, due to attacks on pipelines, while Iraq’s output has been curbed to 4.2 million barrels per day due to disruption in its export pipeline.

“The rebalancing is well under way, courtesy of non Opec reductions and barring any sharp increase from Libya and Iran the price will move towards $50 by year-end,” Hansen said.

This rebalancing has been evident from the diminishing contango in oil prices. The contango between futures prices in the fourth quarter of 2016 and the average of 2017 has shrunk from $3.75 per barrel in December to $2.50 at the end of February and just $1.65 in recent days.