Oil tumbled after the Iranian Oil Minister said that an agreement by Saudi Arabia and Russia last week for oil producers to freeze output was ‘ridiculous.’
Futures fell as much as 6.5 percent in New York. The proposal to cap output at January levels puts “unrealistic demands” on Iran, Bijan Namdar Zanganeh said Tuesday, according to the ministry’s news agency Shana.
Saudi Arabia and Russia, the world’s two biggest crude producers, agreed to a cap on condition other major producers, notably Iran and Iraq, follow suit. Saudi Arabia isn’t cutting output, the kingdom’s oil minister, Ali al-Naimi said at the IHS CERAWeek oil conference in Houston.
“Zangaheh and Naimi have managed to deflate trader’s expectations that there would be an agreement to cut production anytime soon,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “There’s a lot of hard bargaining and additional economic pain that’s going to have to occur before an agreement is reached.”
Oil is down about 14 percent this year on speculation a global glut will persist amid the outlook for increased exports from Iran and brimming U.S. stockpiles. Iran will add more output capacity than any other member of the Organization of Petroleum Exporting Countries over the next six years as it seeks to regain lost market share after the removal of sanctions, according to the International Energy Agency.
West Texas Intermediate for April delivery slipped $1.55, or 4.6 percent, to $31.84 a barrel at 10:59 a.m. on the New York Mercantile Exchange. The March contract rose $1.84 to expire at $31.48 Monday, the highest for front-month prices since Feb. 4.
Brent for April settlement dropped $1.40, or 4 percent, to $33.29 a barrel on the London-based ICE Futures Europe exchange.
Oil stockpiles will keep accumulating into 2017 as supply continues to exceed demand, capping any price recovery, the IEA said in its medium-term report on Monday. U.S. inventories probably expanded further from the highest level in more than eight decades, according to a Bloomberg survey before government data on Wednesday.
Grant Smith contributed.