Doha talks between global producers’ have failed is not much of a news any longer, more so because oil market has so far shrugged off any weakness stemming from it. After Doha talks failed, oil price slumped to $37.6/barrel (WTI) but recovered sharply to trade around $40.4/barrel as of now, as if Doha talk’s failure never occurred.
Nevertheless there are several takeaways that goes beyond, current market pricing of oil benchmarks.
Saudi Arabia’s powerful oil Minister, Ali al-Naimi, told in February to the world that output cut is not in the table but freeze production could be a beginning of a process. This was digested as if Saudi Arabia is finally ready to take some action multilaterally to stem drop in oil prices. Saudi Arabia probably soften its stance, this was the mood surrounding the market all this time, heading to Doha. After Saudi Arabia and Russia in presence of Venezuela and Qatar were able to agree to some form of production freeze in February, hope reached the roof.
But after this weekend’s Doha failure, market are not likely to rely on the wordings of Mr. Naimi, because internally power seems to have shifted. Last week, before the talks, Saudi Arabia’s crown Prince Mohammad bin Salman, speaking to Bloomberg, said that there won’t be any freeze without Iran. While it was known that his grips on power growing in Saudi Arabia, it wasn’t felt until the weekend, when talks failed just as he suggested.
Financial Times report, Saudi delegates in Doha received a call from the Prince, ordering them to come home, which means the talks were dead, even before they began.
So, Doha talks actually turned out as political power show than any coordination, it was meant to be.
Firstly, we have to consider, this new face of Saudi Arabia’s oil industry and believe that he has gained enough prominence and power inside to decide on the future path of the industry. If he moves according to his plans, Saudi Arabia is going to diversify, probably into alternate energy sources and export electricity and refined products.
Secondly, he is ready for some personal cost, in order to make situation difficult for Iran, its main rival in Middle East. That means to fight out Iran’s supply Saudi Arabia won’t hesitate to produce more if necessary. Saudi Arabia has already barred Iranian crude tankers from porting in Saudi Arabia, increasing the cost for Iran.
To add to that, this Doha failure, means OPEC and non-OPEC members are now pushed far apart and coordination will be difficult even if prices start dropping again. To include Russia, into future talks, OPEC and Saudi Arabia will have to pay much higher cost.
Oil on the other hand, played a crucial role in the talks. As price was rising, countries were feeling less compelled to comply. Now price rise even after the failure will make them just extra cheerful, until crude starts responding to fundamentals once more.
