Oil price plunges as Saudi Arabia doubts possibility of a deal

There won’t be a deal, at least for now. That’s what Saudi Arabia’s oil minister has conveyed. Going by his comments there are no chances of a production freeze deal emerging from the meeting in Algeria, however, he says that the meeting is curving ways for a deal in the future. It is the first step towards building a consensus for a freeze deal later in the year. Mr. Falih said, “This is a consultative meeting, as said by many of my colleagues. We will consult with everyone else, we will hear the views, we will hear the secretariat of OPEC and also hear from consumers today”. With regard to the oil market, Mr. Falih suggested that the fundamentals are moving in right direction but at a slower pace than previously expected.

Talks suggest that Saudi Arabia is ready to take part in any deal if Iran joins in too. Saudi Arabia is even prepared to take a production cut up to a million barrel a day if Iran holds output at August level. However, Iran isn’t likely to agree on that as the country aims to reach production levels that at least match the pre-sanction level.

So a failure of agreements would mean that all the major players in the oil market will continue to increase production in the coming months. In August, both Russia and Saudi Arabia pumped crude around 10.7 million barrels per day. Productions from these two are up more than a million barrels per day compared to the level seen six months back. They will continue to pump more along with the other and Iran until the freeze deal gets reached. That would dilute the very purpose of a freeze deal.

WTI is currently trading at $45.3 per barrel and Brent is currently trading at $46.7 per barrel.