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Ripple Effects of Doha No-Ha

Daily Settlement Prices 041516

Daily Settlement Prices

A historic producer summit in Doha, Qatar failed to produce even a modicum of agreement, and oil prices are noticeably weaker heading into Monday morning. While many market observers thought the group would at least reach some sort of understanding, however vague that might be, the fact that the group walked away from the meeting without any sort of production limitations has caused a sell-off in oil. The meeting was in flux from the start, as Iran cancelled its appearance at the last moment (after previously stating it would not agree to any production freeze, but would send a representative to observe and report). Furthermore, global oil power Saudi Arabia steadfastly repeated it would not participate in any production change unless or until all major oil producing nations also joined (this is not surprising, as The Kingdom has said as much in recent weeks). Without Iran at the meeting, the group was unable to reach consensus and left without any official commitment to limiting oil output.

Oil prices were lower towards the end of last week, as market participants likely took some profits on the five dollar upward move in oil over the past two weeks. May WTI settled at $40.36 on Friday, down $1.14 on the day but still moderately higher for the week (the front month contract settled in the $40s every day during the week). When official trading opened on Sunday night, oil fell by almost three dollars per barrel (bottoming out in the mid-$37’s). Clearly the market was anticipating the parameters of some sort of production freeze from the Doha meeting. As of 7:00 AM this morning, oil prices are in moderate recovery mode, clawing back about half of the overnight losses (though front month WTI is below $40). Trading volume is quite high so far on Monday.

The finished products were down over six cents on Sunday night (mimicking the dip in WTI) but have also recovered a bit in early Monday trading. Last week, RBOB was essentially flat for the week while Heating Oil settled three cents higher. RBOB and HO are each down a few pennies thus far on Monday, matching the per barrel price decline in oil.

Interest, volume and volatility should pick up considerably as Monday progresses. The Doha result is clearly seen as bearish, though with the personalities and history of those nations involved in the summit, it shouldn’t be all that surprising.

Monthly Settlement Prices 041516

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