Crude oil prices slipped as expected after OPEC and non-OPEC members Sunday failed to come to agreement about freezing production at January levels.
However, oil prices did not fall as far as the market feared and in U.S. action Monday, oil was rebounding, leaving the market to debate near-term direction. One reason the price drop was moderated may be the strike of Kuwaiti oil workers Sunday that has cut production in that country by more than half, to around 1.1 million barrels a day. It is not known how long the strike might last.
NYMEX May light sweet crude oil futures were trading down $1.06 or 2.63% at $39.30 per barrel in U.S. action Monday, after trading in a $37.61 to $39.55 range. Brent was down 2.28% to $42.09.
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The earlier low was seen in pre-hours action Sunday, with the sell-off from Friday's $40.36 settlement stemming from the lack of agreement at the OPEC/non-OPEC meeting in Doha to freeze production.
The crux of the talks was that negotiations will continue into the larger OPEC meeting June 2 in Vienna.
The market did not have high hopes for an agreement given uncertainty whether Iran would attend and indeed the country did not send a delegate to the Doha meeting.
Players continued to digest the weekend events and were deciding where oil might go next.
On the day, the front contract held below $39.00 per barrel most of the Asian and UK/eurozone sessions and then ahead of the U.S. open saw a pop up to $39.55.
In a worst case scenario, the market had expected a move back to this month's low of $35.24, seen April 5, but West Texas Intermediate was able to stabilize above that.
A break above Friday's settlement would suggest scope for a retest of that day's high of $41.73, whereas taking out the overnight lows would target the $35-$36 zone and this month's lows.
ICE Brent was trading down $1.10 at $42.00 per barrel, on the high side of a $40.10 to $42.48 range. Brent settled Friday at $43.10 per barrel.
On April 13, WTI posted a high of $42.42, the highest level since Nov. 30, and Brent posted a high of $44.94, the highest since Dec. 1.
WTI and Brent's 200-day moving averages, at $40.68 and $43.25 respectively, will act as resistance. Both contracts (on the continuation chart) traded and closed above the 200-day moving average last week for the first time since July 2014.
CitiFX technical analysts noted that WTI stalled earlier right at "the channel base and trendline support at $37.40-$37.85."
A close below this zone "would suggest further losses, possibly back down at $34.82," they said.
"We will have to wait at least a couple of sessions before determining whether the correction down at the start of this week is already over or not," CitiFX said.
Ahead of the Doha meeting, hopes had not been high that an agreement was possible so that the lack of progress Sunday was not a complete surprise.
"With his decision to double down on the demand for full Iranian participation in a freeze agreement, Saudi Arabia's de-facto ruler Mohammad bin Salman (MBS) proved to be the ultimate disruptor at Sunday's much anticipated meeting of sovereign producers in Doha," said strategists at RBC Capital Markets in a note.
"Saudi Arabia stood firm despite the determined efforts of its key GCC allies such as Qatar and Kuwait, which normally stand shoulder to shoulder with the Kingdom on oil policy, to forge an agreement to freeze output at January levels irrespective of Iranian involvement," they said.
With Iran not in attendance and making it clear that the country would reject a freeze, Saudi officials were free to dig their heels in, the strategists said.
More meetings were likely and Nigeria's oil minister also suggested that the group would reassemble again around the June OPEC meeting, they said.
"However, unless Saudi Arabia or Iran has a change of heart, we fail to see how the outcome will be any different, and it may ultimately be mounting supply disruptions in stressed states, rather than collective cartel action, that causes an accelerated market rebalancing," the strategists said.
In the near-term, RBCCM looked for crude prices to "find support in the mid-$30/bbl range given an otherwise improving fundamental backdrop."
Nevertheless, "this botched attempt at a deal may sterilize the influence on prices leading into future meetings," they said.
Sunday's highly anticipated meeting "exposed the political rift between Saudi Arabia and Iran, and ultimately doomed the agreement," said commodity analysts at Barclays.
"The producer countries are likely to meet again at the OPEC meeting in June, but we assign little meaning to the process in light of the fundamental rebalancing that is underway," they said.
Barclays maintained their "fundamental view that Brent is likely to average $36/b during Q2."