Money managers lost faith in oil’s recent rally as doubts grew over whether major producers will be able to agree on an output freeze.
Futures in West Texas Intermediate oil retreated last week for the first time since mid-February. Prices had surged from a low of almost 13 years on a proposal by Saudi Arabia, Russia, Venezuela and Qatar to cap oil output and reduce a global surplus. They’ll meet with other countries in Doha on April 17.
While Iran said it would attend the talks, it ruled out limiting supply as it restores exports after sanctions were lifted in January. Then Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman said in an interview with Bloomberg that his country will freeze its output only if Iran and other major producers do as well. That pushed WTI down a further 4 percent.
“Doubts were growing about the meeting before the Saudi comments,” said Mike Wittner, head of oil markets at Societe Generale SA in New York. “People who follow this were coming around to the position that even if an agreement could be reached to freeze output without Iran, it wouldn’t amount to anything.”
Short positions on WTI crude, or bets that prices will fall, rose the most since November in the week ended March 29, according to the U.S. Commodity Futures Trading Commission. The liquidation of shorts during the prior seven weeks was the largest on record.
Iranian Blueprint
Iran plans to boost crude output to 4 million barrels a day, the highest level since 2008, before it will consider joining other suppliers in seeking ways to rebalance the global oil market, Oil Minister Bijan Zanganeh said last month. Iranian output rose by 100,000 barrels a day to 3.2 million in March, the most since May 2012, according to a Bloomberg survey.
“It’s not clear what they have to talk about,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “I don’t even know why they want to gather in a room to talk if the Saudis say they won’t freeze output unless Iran does, and we know the Iranians have no intention of cooperating.”
WTI oil for May delivery dropped 7.6 percent to $38.28 a barrel in the report week on the New York Mercantile Exchange. The contract lost as much as 1.7 percent on Monday, and was little changed at $36.77 a barrel as of 10:36 a.m. London time.
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