Oil losses deepen on doubts over output freeze deal

[LONDON] World oil prices fell further on Monday on doubts over a consensus between producer nations to limit output in an oversupplied market, dealers said.

At around 1700 GMT, US benchmark West Texas Intermediate (WTI) for delivery in April dived US$1.71 to US$36.79 per barrel.

Brent North Sea crude for May delivery sank US$1.27 to US$39.12 a barrel compared with Friday's close.

Oil had rallied Friday after the International Energy Agency said that after the market's 20-month long rout, there were signs prices may have "bottomed out".

However, prices hit reverse gear on Monday after Iran reportedly announced over the weekend that it would not join a proposed output freeze by crude producers.

Sentiment took another hit from the stronger dollar, weak Chinese industrial output, and a gloomy market assessment from the Organisation of Petroleum Exporting Countries (Opec).

"It has been a combination of factors: comments from Iran's oil minister, Opec forecasting a bigger surplus, weaker Chinese industrial data and a rebounding dollar," said analyst Fawad Razaqzada at trading firm City Index, when asked about the latest oil price losses.

"But the short-term trend for oil is still bullish, though Brent needs to hold above key support at US$39 a barrel or we could see a more pronounced correction."

A meeting of oil producers to discuss a global deal to freeze production levels will likely take place in April, Russian energy minister Alexander Novak said Monday.

However, he also acknowledged that Iran might not be included.

"The place and time of a meeting of oil-producing countries is being discussed. It will probably be held in April," Interfax news agency quoted Mr Novak as saying.

Mr Novak said earlier this month that a meeting of Opec members and other oil-producing countries could be held between March 20 and April 1.

Four major oil producers - Russia, Saudi Arabia, Venezuela and Qatar - said last month they were ready to freeze their output at January levels if other oil-producing countries joined their initiative.

Oil prices, which have plummeted more than 60 per cent since mid-2014 partly because of oversupply, have recently recovered slightly on talk of an output freeze.

Mr Novak said that Iran could be excluded from the deal in order to allow it to increase its crude production after Western sanctions over its nuclear programme hindered its access to the global oil market.

Tehran is reported to have said over the weekend that it would join a planned meeting between producer giants on output only after its output has reached pre-sanction levels of 4.0 million barrels per day (bpd).

"Iran's position is that it needs to retrieve its pre-sanction production levels within the framework of Opec quotas," Mr Novak said. "The country could join the freeze later."

Meanwhile, Opec said on Monday its oil production fell in February despite member Iran steadily increasing its output after the international sanctions were lifted in January following a landmark nuclear deal.

The decrease can be largely attributed to a steep production drop in Iraq, which has suffered from the global price slump for crude and rival oil exports by the autonomous Kurdistan region, Opec said in its February monthly report.

Crude output dropped by 175,000 bpd in February to average 32.28 million bpd, it said. The cartel's output still exceeds demand, which the cartel now projects at 31.5 million bpd, slightly lower than last month.

Despite Monday's losses, the oil market has rebounded in recent weeks, with WTI touching a three-month high and Brent breaching the US$41 mark last Wednesday.

Traders are also watching a meeting of US Federal Reserve policymakers on Tuesday and Wednesday, with attention on whether they will announce another interest rate hike.

AFP