EMEA News
Oil Slumps as Saudi Offer to Iran Prior to Freeze Deal Proves Empty
A widely reported pre-freeze offer from Saudi Arabia to Iran that turned out to be erroneous caused a wild market ride on Friday; this coupled with grim news from the Saudis about the talks ultimately caused oil prices to fall around 4 percent.
Brent dropped $1.67, or 3.5 percent, at $45.98 per barrel, while West Texas Intermediary was down $1.76, or 3.8 percent, at $44.56.
The losses were attributed to Bloomberg reporting the comments from unnamed OPEC delegates that the Saudis do not expect a deal coming from Organization of the Petroleum Exporting Countries (OPEC) members and non-members when they meet in Algeria next week.
But that prognosis was telegraphed earlier in the week by Mohamed Faraj Al Mazrouei, energy minister for the United Arab Emirates, who told media "We're not meeting for a decision, we are meeting for a consultation, and we will see what that meeting produces."
Earlier Friday, reports that the Saudis had offered to cut oil production if Iran agreed to cap its own output caused Brent and WTI to climb to their largest weekly gain in over a month.
Again, the reports were based on unnamed sources, who told Reuters "They (the Saudis) are ready for a cut but Iran has to agree to freeze," and that the offer had been presented to Tehran; the sources also said the United Arab Emirates, Qatar, and Kuwait were expected to contribute to any reduction if an agreement was reached.
Zero Hedge helped burst the bubble by pointing out that the offer "was promptly shut down by third party observers: moments ago, Wall Street Journal reporter Summari Said effectively killed this particular attempt to spike the price of oil when she reported - also citing sources - that Saudis and Iranians have clashed over output freeze levels, and that Iran has refused to cap output."
According to the most reliable sources, Iran won't consider a cap until its output reaches 4.75 to 5 million barrels per day (bpd) – which is entirely consistent with the Islamic republic's most recent official declarations.
Said wrote that an Iranian official said his country was unlikely to agree to a freeze because it would force the republic to suspend output at 3.6 million bpd; also, "Saudi Arabia and Iran also couldn't agree on what statistics should be used to determine oil output levels for a potential freeze.
"The disagreement took place among midlevel officials from Saudi Arabia, Iran, Qatar and Algeria meeting at OPEC's headquarters in Vienna."
Zero Hedge set the tone for market reporting over the next week by stating, "We expect many more such headline headfakes in the coming days and especially early next week during the Algiers OPEC meeting."
Once again, under reported on Friday is the majority consensus from analysts that record-level output will render a freeze meaningless anyway: Christof Ruehl, global head of research for Abu Dhabi Investment Authority, recently stated that the "massive" overhang of inventory means "we'll have to wait a while, probably two years," for it to clear and for a true stabilization to occur.
