A failed attempt to agree an output freeze by some of the world’s largest oil producers in Doha over the weekend has sent oil prices tumbling at the start of the week, which in turn appears to be weighing on European futures as we approach the open.
Energy stocks in Asia have broadly led the decline overnight and I expect to see similar results when European equity markets open this morning. Oil prices have rallied quite well since the start of the year, in part on an expectation that an agreement to freeze production at January levels would be reached. Sunday’s outcome was a real setback and it appears growing tensions between Saudi Arabia and Iran, not to mention the latter’s late decision not to take part in the talks, was largely behind the collapse in talks.
The inability of the other oil producers to even agree on a loose commitment to freeze output for now says a lot I think. With this now seemingly off the table, at least until the next OPEC meeting in June and probably beyond, I struggle to see what could continue to support oil prices at this levels, even taking into consideration the considerable sell-off overnight. Declining U.S. production may help support prices to an extent but when you factor in Iran’s intention to return to pre-sanction levels, this more than offsets any reduction.
Looking ahead to the rest of the trading week, the ECB is due to meet again on Thursday, which I expect will be less eventful than the March meeting given that further stimulus is unlikely. Although as we know what to expect from these events, they’re never entirely uneventful and I would expect this to be no different. There’ll also be a focus on the UK this week, with the latest labor market data and retail sales figures due out.