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Oil recoups heavy losses from Doha talks collapse
[NEW YORK] The oil market late Monday recouped heavy losses spurred by the failure of major crude producers to agree curbs on output that could have firmed up the market.
Analysts said a strike that knocked out more than 60 per cent of Kuwait's production helped support the market.
Crude prices fell nearly seven per cent early in the day after producers came away from talks in the Qatari capital of Doha on Sunday empty-handed.
But by the end of trade, US benchmark West Texas Intermediate for delivery in May had largely recovered, losing 58 US cents (1.4 per cent) at US$39.78 a barrel on the New York Mercantile Exchange.
In London, Brent crude for June delivery, the international benchmark, dipped just 19 US cents (0.4 per cent) to US$42.91 a barrel.
Opec kingpin Saudi Arabia insisted Sunday it would not agree to freeze production without the participation of fellow cartel member Iran - which boycotted the talks.
Prices had rebounded last week on hopes that Opec and non-Opec producers such as Russia would agree to freeze output levels.
"An agreement on production caps, which had still seemed possible the day before, collapsed because of Saudi Arabia, which demanded that all oil producers - that is to say including Iran - should be included," Commerzbank analysts said in a client note.
"Saudi Arabia intentionally torpedoed the agreement and was willing to accept its failure. This has severely damaged the credibility of oil producers in general and of Opec in particular," Commerzbank said.
Matt Smith of ClipperData said the market found some support Monday from an open-ended strike by oil workers in Kuwait over planned wage cuts.
Oil production plunged more than 60 per cent to 1.1 million barrels per day on Sunday, the first day of the strike. Mr Smith noted that Kuwaiti crude is shipped primarily to South Korea, China and India.
Still, the failure of the Doha talks points to a continuation of the market glut. Rising production and slower global growth, particularly in China, the world's largest energy consumer, helped to push crude prices from above US$100 in mid-2014 to 13-year lows of around US$27 in February.
Until now the members of the Organization of the Petroleum Exporting Countries, which pumps about 40 per cent of the world's oil, refused to cut output.
The Saudi-backed stance has aimed at pushing the market lower drive out less-competitive players, including US shale producers, while maintaining their own market share.
But, although it has fallen about six per cent, US production remains high.
The result though is that major exporters from Nigeria to Venezuela to Canada, and including Saudi Arabia, have suffered billions of dollars in lost revenue as prices have collapsed.
"The much-awaited meeting exposed the political rift between Saudi Arabia and Iran, and (this) ultimately doomed the agreement," said Barclays oil analyst Miswin Mahesh in a research note.
Iran - which only recently returned to world oil markets after the lifting of nuclear-linked sanctions by the United States and other major powers in January - has ruled out capping its own production and says it want to boost output to pre-sanction levels.
"While there are a number of factors that might curb oil supply in the short-term - including a strike in Kuwait and the earthquake in Ecuador - Opec's main problem is the relationship between Saudi Arabia and Iran and this problem is not going to go away," Rebecca O'Keeffe, head of investment at online broker Interactive Investor, told AFP.
"Indeed, Saudi Arabia may move to increase supply in response to higher Iranian output in an effort to maintain their market share," she said.
"This impasse could see a sustained medium-term depression in oil prices."