Oil Falls to One-Month Low as Saudis Link Output Freeze to Iran

  • World's biggest crude exporter will raise output if others do
  • Russian oil production climbed to post-Soviet high last month

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Oil dropped to a one-month low after Saudi Arabia’s deputy crown prince said his country will freeze output only if Iran follows suit, putting in doubt the prospects of a proposed deal to freeze supply.

Futures slipped 3 percent in New York. Saudi Arabia’s Mohammed bin Salman signaled in an interview with Bloomberg last week that if any country raises output, his nation will also increase sales. Producers are scheduled to meet this month to discuss an agreement on capping supplies. Iran’s oil minister said he’ll attend the gathering if he finds the time. Russian oil production reached a post-Soviet high in March.

"The concept on an OPEC, non-OPEC cut or freeze is a joke," said Stephen Schork, president of the SchorkGroup Inc. in Villanova, Pennsylvania. "The Saudis aren’t about to do anything when the Iranians continue to increase production. The Russians just announced that they’re pumping at a post-Soviet high, and they’re the ones that have been jawboning the most."

The Saudi comments have halted a rally of more than 40 percent in oil since mid-January. Investors have this year speculated that waning production in the U.S. would ease a glut as Saudi Arabia, Russia and others moved to cap output. Iran’s determination to increase its sales to pre-sanctions levels and the Saudis’ insistence that Iran join the freeze have put that plan in doubt.

Draft Resolution

West Texas Intermediate for May delivery fell $1.09 to close at $35.70 a barrel on the New York Mercantile Exchange. It’s the lowest settlement since March 3.

Brent for June settlement dropped 98 cents, or 2.5 percent, to $37.69 a barrel on the London-based ICE Futures Europe exchange. Futures ended the session at the lowest level since March 3. The global benchmark crude closed at a 66-cent premium to WTI for June delivery.

Oil-producing countries are discussing a draft resolution for the Doha meeting, Russian Energy Minister Alexander Novak told reporters in Novokuznetsk, Russia. The meeting may lead to a decision on tools to monitor output levels, he said.

The Saudi conditions "effectively put the nail in the coffin" on the recent price rally, BNP Paribas analysts Gareth Lewis-Davies and Harry Tchilinguirian said in an e-mailed note Monday. Crude prices could easily revisit the lows of the year, they said in the note.

Missing Discipline

"The discipline and unity needed for a freeze is missing," said Gene McGillian, a senior analyst and broker at Tradition Energy in Stamford, Connecticut. "Russian production in March rose to a new post-Soviet record, Iranian exports appear to be rising and the Saudis poured cold water on the idea of a freeze last week. This is not a picture that supports $40 oil."

Rigs targeting crude in the U.S. fell to 362 last week, the least since November 2009, Baker Hughes Inc. said Friday. More than 1,100 oil rigs have been parked since the start of last year as slumping prices make it uneconomical to drill. Production fell by 16,000 barrels a day to 9.02 million in the week ended March 25, the least since 2014, Energy Information Administration data show.

“The market will be focusing in the short term on Saudi Arabia’s stance on capping production and Russia’s production at a new post-Soviet-era high,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen. “Further down the line, the continued fall in U.S. rigs and production combined with the seasonal slowdown in inventories will add support come May.”

Ample Stockpiles

U.S. crude inventories probably rose 3 million barrels last week, according to a Bloomberg survey conducted before an EIA report Wednesday. That would leave stockpiles at 537.8 million, the most since 1930.

TransCanada Corp. shut two segments of its Keystone pipeline after oil was found on the surface in South Dakota, company spokesman Mark Cooper said in e-mail. The segments were closed Saturday and will remain offline while the company finishes cleanup efforts. Keystone connects Alberta to U.S. refineries and the Gulf Coast.

Other news:

  • Oil markets will probably balance by the end of next year, with prices rising in the medium term, according to Sultan Al Jaber, the new head of Abu Dhabi National Oil Co. said in an interview with Abu Dhabi dailies The National and Al Ittihad. 

  • Kazakhstan has made claims of about $1.6 billion against an Eni SpA and Royal Dutch Shell Plc-led group developing the nation’s second-largest oil and natural gas field. The claims, relating to a dispute over “cost recovery” at the Karachaganak field, are being negotiated and the matter hasn’t gone to court, Russia’s Lukoil PJSC, a partner in the project, said in a statement on Monday.

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