Oil prices dive after producers fail to agree output cap

Oil prices have dropped sharply after a meeting of oil producers failed to agree an output freeze.

Brent crude fell 7% at one point before recovered slightly to stand down $2.30, or 5.3%, at $41.54 a barrel.

The meeting in Qatar was attended by most members of oil producers' group Opec, including Saudi Arabia, but not Iran.

Saudi Arabia, the world's biggest exporter, had been prepared to freeze output if all Opec members had agreed.

But Iran is continuing to increase output following the lifting of sanctions against it.

"As we're not going to sign anything, and as we're not part of the decision to freeze output, we ultimately decided it was not necessary to send a representative," the Iranian government said.

After hours of talks in Qatar, the country's energy minister Mohammed bin Saleh al-Sada said that the oil producers needed "more time".

He said after the meeting: "We of course respect [Iran's] position... The freeze could be more effective definitely if major producers, be it from Opec members like Iran and others, as well as non-Opec members, are included in the freeze."

 

As well as the fall in Brent, the price of US crude oil was down 6.8%, or $2.82 lower, at $38.68 a barrel.

The Russian rouble also fell sharply, dropping 2% against the US dollar to 67.79.

Markets 'rebalancing'

The meeting in Qatar was not formally an Opec event, though most of the group's members were represented.

Opec has been slow to respond to the sharp fall in oil prices, which are still less than half the peak of $115 ($81) a barrel seen in June 2014.

The price of oil had risen in recent weeks, largely due to speculation that some major exporters would limit supply.

Amrita Sen, chief oil analyst at Energy Aspects, told the BBC that oil markets were "rebalancing" even without a deal being reached in Qatar.

"Production is falling everywhere because of low prices so the freeze actually wouldn't really matter for the markets because people are already producing at maximum levels and production is anyway gradually falling with or without the freeze deal," she said.

"But for sentiment it has a huge impact because at the moment these guys aren't even able to talk and come to an agreement."

The FTSE 100 was down 0.2% in afternoon trading, with Shell down more than 2% and BP 1.6% lower.

"BP and Shell were early and inevitable casualties as investors reacted to the fall in oil prices following the failure by oil exporting countries to reach an agreement on output," said Russ Mould, investment director at AJ Bell.

"The fall in oil prices is sparking profit-taking as a marked slide in crude raises the question of whether BP and Shell will be able to maintain their dividend payments if oil remains lower for longer."