Oil falls back below US$40 as Iran dashes hopes for quick deal on output

LONDON – Oil fell on Monday after Iran dashed hopes of a coordinated production freeze any time soon, returning bearish sentiment to the market on the supply glut which has sent prices crashing.

Global benchmark Brent crude futures fell back below US$40 a barrel, trading at US$39.70 at 1128 GMT, down 69 cents US or 1.7 per cent on Friday’s close. Brent hit a 12-year low of US$27.10 in January.

U.S. crude was down 82 cents US at US$37.68 a barrel.

“Oil is down because Iran said they’d only join the output freeze group once they reached manufacture of 4 million barrels each day (bpd),” said Tamas Varga, oil analyst at London brokerage PVM Oil Associates.

Iran’s oil exports result from reach 2 million bpd in the Iranian month that ends on March 19, up from 1.75 million in the last month, oil minister Bijan Zanganeh said on Sunday.

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Zanganeh poured cold water on hopes for a quick deal on freezing production, saying the OPEC member would join discussions only once its very own output reached 4 million bpd. Zanganeh would be to meet his Russian counterpart Alexander Novak in Tehran on Monday, based on news agency reports.

Saudi Arabia appeared to have stuck to some preliminary deal with another producers to freeze output, as its crude production held steady in February at 10.22 million bpd, an industry source told Reuters.

OPEC members and non-OPEC producers are likely to hold their next meeting to discuss an output freeze in mid-April in Doha, OPEC sources told Reuters.

A March 20 meeting in Russia, which was part of an earlier plan, now looks unlikely.

Worries about demand fundamentals moved into the spotlight as investment bank Morgan Stanley warned that a slowing global economy and high production would prevent any sharp rises in oil prices.

“Oil prices now appear to have bottomed, while they will probably stay subdued throughout this season before beginning to maneuver higher in 2017,” the U.S. bank said inside a research note. It added that cheap oil had not provided the boost to growth that many had hoped for.

“When oil costs are falling below production costs, the income gains for consumers is going to be smaller than the costs to producers, and falling oil prices become a negative-sum game,” it said.

? Thomson Reuters 2016