Oil Tanks Following Failed Talks in Doha

The recent roller-coaster of an oil market has continued as the price of oil has tumbled more than 5% after output talks failed yesterday. The world’s biggest producers convened to attempt to reach an agreement limiting supplies in order to keep the oversupply of the commodity which has dampened prices in check.

The complexities involved in reaching an agreement include Saudi Arabia refusing to curb production unless neighbouring countries including Iran also restrain; which they are refusing to do. The issue is one of market share, a position no country seems to want to cede any ground. West Texas Intermediate (WTI) is currently trading at $38.45 in the futures market, down 4.5% from the latest close after falling as much as $37.61 overnight.

The failed talks were the first significant attempt between OPEC and non-OPEC countries to agree on a path going forward. The group’s inability to agree undermines any prospect of coordinated action to solve the market slump.

Analysts of the oil market believe that a lack of a co-ordinated effort between oil producing countries could result in a delay of the rebalancing of the market to 2018, with volatility levels remaining high. Following the meeting, high ranking officials of the participating countries said they weren’t surprised there wasn’t an agreement as the lack of presence of Iran and the change of position of some countries right before the summit led to “hot discussions”.

OPEC and non-OPEC producers will meet again hopefully, probably in June, Emmanuel Ibe Kachikwu, Minister of State for Petroleum Resources, told reporters in Doha. Other asset classes reacted negatively to the news, with Asian markets trading lower following the lack of agreement. The negative sentiment carried through to European markets, with most equity bourses down close to 1% at the opening led lower by energy stocks. The correlation between the two asset classes is one of the strongest in recent history.

In credit, sovereign yields are largely unchanged with Italian and Spanish yields 1.5 bps wider to 1.34% and 1.5% respectively. High yield markets are trading softer, with energy and communications names trailing.

Looking ahead, focus will be on the ECB press conference on Thursday. No further rate cut is expected, although market participants are looking forward seeing more details around the corporate purchase programme.

Speculation remains about the future stance Federal Reserve chair Janet Yellen will take as economic data together with corporate earnings are indicating a strengthening economy. Policy makers are calling for an interest rate hike to help stabilize the financial sector, especially the margins for banks and other credit institutions. Most analysts expect the fed’s dovish tone to change to reflect an economy gaining momentum and reaching “full-employment”.

Taking a look at this week’s calendar now then. We’ve got a fairly quiet start to the week today with the only data of note coming this afternoon in the US when we’ll get the NAHB housing market index reading for April. Tuesday in Europe is highlighted by this month’s German ZEW survey reading along, while the ECB bank lending survey released tomorrow morning will also be worth keeping a close eye. Over in the US tomorrow we’ve got more housing market data to digest with the March building permits and housing starts data.

This article was issued by Rebecca Naudi, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd. has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.