Oil Futures Lower Ahead of DOHA Talks

NEW YORK (DTN) -- New York Mercantile Exchange oil futures declined Friday morning as traders lowered their expectations ahead of a meeting set for Sunday (4/17) of leading oil producers including Russia and Saudi Arabia to discuss freezing production at January levels.

Initial optimism about the meeting has eroded somewhat after Iran said it won't send its oil minister to the Doha meeting because it doesn't plan to freeze its production. Instead, Iran plans to continue raising its supply to its pre-sanction's level before considering the proposal to freeze output, with Tehran winning sanctions relief in January.

At 9:00 AM ET, NYMEX May West Texas Intermediate crude futures fell 96cts to $40.54 bbl, off a three-day low of $40.24. June Brent crude futures on the IntercontinentalExchange declined $1.04 to $42.80 bbl, off a three-day low of $42.56.

In products trade, NYMEX May ULSD futures dropped 3.71cts to $1.2172 gallon, near a three-day low of $1.2121. NYMEX May RBOB futures plummeted by 4.42cts to $1.4614 gallon, off a $1.4742 four-day low.

Trade volume is expected to be low in pre-weekend trading today, with traders apprehensive about adding new positions, while analysts believe the market is likely to trade within a narrow range.

Most of the focus is on the Doha meeting to be attended by the Organization of Petroleum Exporting Countries and non-OPEC countries to discuss freezing output as a step towards reducing supply and rebalancing the market.

Speculation about the planned output freeze led WTI to rebound from a 12-1/2 year low of $26.05 bbl posted Feb. 11 to a $42.42 bbl 4-1/2 month high on Wednesday (4/13) on hope this would be the first step in rebalancing the oversupplied oil market.

However, there are doubts the meeting would succeed in rebalancing the market, in part because a production freeze is not a cut, and also some of the biggest producers like Saudi Arabia, Iraq and Russia produced at record levels in January. At the same time, the rift between Iran and Saudi Arabia threatens to derail the plan to freeze output.

"There is more attention being paid to who is not coming [to Doha] than who will be there," said analyst Phil Flynn at Price Futures. "Oil prices dipped after a report that the Iranian oil minister decided not to show up and send in his B-Team. While no one expects that Iran would actually freeze production, there was some hope that there could be a more comprehensive agreement that would include Iran and the possibility that Iran would agree to some type of production quota in the future. Yet, the tensions between Saudi Arabia and Iran are still high."

Recent comments by Saudi Arabia and Iran have raised doubts about a deal being reached because Tehran has rejected a Saudi demand that every OPEC member, including Iran, freeze their output. Iran argues they won sanctions relief only in January and must be allowed to return their production to their pre-sanction's level before considering the freeze plan. Russia and Kuwait have said there could still be deal without Iran.

Barclays bank highlighted uncertainty about the plan, noting it's unclear whether the freeze start date will be January or March. The International Energy Agency noted a deal to freeze output expected to be finalized in Doha would have limited impact in reducing the global oil glut.