Oil Ends the Day Mixed

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled mixed Monday afternoon, with West Texas Intermediate crude paring losses after dropping nearly 7% overnight from Friday's settlement, as an oil workers' strike that disrupted 60% of Kuwait's oil supply limited the impact of Sunday's failed efforts by leading oil producers to agree on a production freeze at January levels.

"The Kuwaiti strike took out of the market more oil than the OPEC production freeze would have done," said Ed Morse, head of commodities at Citibank. "But the strike is temporary… it will be over soon, and [Brent and WTI] oil prices will go back below $40 bbl."

Others agreed.

"The failure of the Doha meeting is bearish, but I don't expect oil prices will go back to $20s because that drop early this year was predicated on weak growth in China, but China is doing better now," said Bruno Stanziale, head of commodities at Eurasia Group.

NYMEX May WTI crude futures settled 58cts lower at $39.78 bbl, moving off a one-week low of $37.61, ahead of its expiration Wednesday afternoon. June Brent crude futures on the IntercontinentalExchange declined 19cts to $42.91 bbl at settlement, off a one-week low of $40.10.

In products trade, NYMEX May ULSD futures reversed to end slightly higher, settling up 0.37cts to $1.2359 gallon after posting a one-week low of $1.1704. NYMEX May RBOB futures fell 2.47cts to a $1.4365 gallon settlement, off a $1.3990 one-week low.

On Wall Street, equities reversed higher while the dollar was lower, with a weaker dollar bullish for oil futures.

Oil futures tumbled late Sunday through Monday morning after Sunday's meeting of 18 international oil producers led by the Organization of Petroleum Exporting Countries and Russia ended without an agreement to freeze production at January rates, disappointing the market and triggering a new round of profit-taking.

The talks failed after Saudi Arabia said it won't restrain output if Iran doesn't do the same. Ahead of the talks, Iran had made clear it would not freeze its production until returning to its pre-sanction's output level, having received relief from sanctions in January. OPEC officials said production rates would again be discussed at their next meeting scheduled in early June.

Analysts said the outcome of the Doha meeting reflected a shift in the Saudis strategy and the way they are going to manage their oil policy going forward, with the Deputy Crown Prince Mohammed bin Salman apparently in control rather than long-time Oil Minister Ali al-Naimi.

Iran has steadily increased crude production since the end of sanctions in January, with Tehran targeting output at 4.0 million bpd. In the latest Monthly Oil Market Report for April, OPEC cited secondary sources that showed Iran crude output at 3.291 million bpd in March, up from 2.944 million bpd in January.

Analysts said the collapse of the Doha talks raises fear OPEC members would intensify a battle for market-share by offering customers in Asia, Europe and the United States steeper discounts for their oil.

Tim Evans, an energy specialist at Citi Futures, noted how benign the freeze plan was since it was non-binding, adding the outcome "short-circuited the theory that a deal would have allowed oil prices to test the $50 level in the weeks ahead." Others said a deal would have had little impact on supply since Saudi Arabia and Iraq were producing at record highs in January.

"This meeting and its outcome should have built confidence that the oil market rebalancing was close at hand," said Barclays Capital. "The failure of the talks gives the market another clear indication, similar to the failed December 2015 OPEC meeting, that OPEC's relevance in this market environment has faded."

Domestically, analysts are mixed on their forecast for U.S. crude inventories. One analyst projects a 3.0 million bbl stock build while another anticipates a 1.0 million bbl stock draw for the week-ended April 15.

George Orwel can be reached at george.orwel@dtn.com