Oil takes a tumble after OPEC fails to reach agreement

Brent oil price falls 10% on OPEC agreement failure last night

Unsurprisingly OPEC failed to reach an agreement on output levels at their meeting of 16 opec members in Doha last night.   What is surprising is that the market had such high expectations of a deal and that over half of surveyed economists believed that an accord would be reached. Seems traders positioned accordingly and so we see a 10% reaction in oil price over night, from $44.75 to $40.15 a barrel before pulling back to $41.2 at the time of writing - still an 8% fall.

Will be interesting to see knock on effects on European utilities (down as correlated with electricity prices), oil and gas producers (down) and airlines (up) in today's equities trading.

Why am i not surprised about this OPEC talk failure?   Well its like asking the UN to agree on a meaningful and effective resolution.  There is no incentive.  Ignoring the fact that some countries hate each others guts and are fighting a proxy war (Iran-Saudi) you more importantly have diametrically opposed incentives  -  the rich Gulf states (Saudi, Kuwait, UAE) wanting to protect market share at all costs for the future,  while the poorer oil dependent states (Venezuela,  Iran) need to generate income at all costs in order to gain market share and increase USD state revenue.  Russia probably falls in between but would likely also want to see an output restriction and higher oil price at around $60 as their cost of production is higher than Gulf states and Iran.

OPEC is not an organisation representing similar interests and such it is set up to fail.  There will be no output reduction let alone freeze in the near term.  The least improbably outcome to hope for is that the Gulf states led by Saudi agree to a unilateral output freeze and cede market share to Iran for the common good.  But don't hold your breath.