Saudi Oil Stance a Nail in Rally's Coffin And More Proof the Freeze Talks Are Doomed

Harry Tchilinguirian says oil prices between $30 and $40 will dominate the market for the next few quarters.

Saudi Arabia's declaration that it won't freeze oil production unless Iran does so is not only widely viewed as yet more evidence of the futility of the April 17 meeting of oil producing nations, it also signals the end of the oil price rally, according to a BNP Paribas commodities specialist.

Speaking on Bloomberg Surveillance, Harry Tchilinguirian, head of commodities markets at BNP, said the Saudi stance "puts a nail in the coffin in terms of the rally: we'll end up with a lot of production and therefore a lot of soft builds, and for the market that's not very constructive."

When asked to predict the likely price point of oil in the near future, Tchilinguirian replied, "Between $30 and $40 seems reasonable over the next quarters."

On the same program, Lena Komileva, chief economist at G Plus Economics, expressed "concern about financial stability in this environment: we do really want higher oil prices, generically rising instead of artificially rising, to get a more stable global financial system."

Meanwhile, Simon Fentham-Fletcher, CIO at Freedom Asset Management, believes any hope of an output freeze between major oil producing nations "is minimal."

He goes on to explain that "Russia will not and has never held to any production freezes ever, and I can't see it doing so now; the Saudis are in the same situation, they've been trying to grab market share and we have Iran coming back online, they were very unsure about the levels of the Iranian oil production."

Supporting this sentiment is Norbert Ruecker, head of commodity research at Julius Baer, who stated in a note, "Most petro nations are starving for cash and the incentives are set to produce more rather than less, not least as Iran returns to the market claiming its historic share of the export pie."

Still, despite the overwhelming negative sentiment towards the April 17 talks, Fentham-Fletcher reiterates the minority conviction that "a production freeze will eventually happen; at the moment just the talk of it is good for the oil price."

The latest wave of criticism was triggered last week when Deputy Crown Prince Mohammed bin Salman of Saudi Arabia said his country will not agree to any freeze unless Iran and other major producers do so; his remark caused U.S. oil to plummet 4 percent to $36.79 per barrel.