Oil Price Drops After Doha Meeting Fails

Oil prices have tumbled after major exporters failed to reach an agreement in Qatar to prevent global oversupply.

Brent crude fell to $41.93 per barrel - a 2.71% drop - clawing back from $40 a barrel earlier this morning.

Saudi Arabian and Iran tensions are blamed for the breakdown of the talks, aimed at alleviating prices which have fallen by as much as 70% since mid-2014 with producers pumping one to two million barrels of crude every day in excess of demand, leaving worldwide storage tanks full of unsold fuel.

The Doha talks, which were expected to hold output at January levels until this October, finished once Saudi Arabia demanded unrepresented Iran should also sign up and threatened to hike output.

Shares (Berlin: DI6.BE - news) in oil firms were down, with BP losing 1.3% and Shell (LSE: RDSB.L - news) 1.2%. Mining companies, also vulnerable to oil prices, were some of the biggest losers on the FTSE drops on Monday.

AJ Bell Investment Director Russ Mould said: "BP and Shell were early and inevitable casualties as investors reacted to the fall in oil prices," which "raises the question of whether BP and Shell will be able to maintain their dividend payments if oil remains lower for longer".

"The other sector which could suffer in the event of fresh oil price weakness is the banks - already the worst-performing area of the UK market in 2016," he added.

"Fresh declines in crude may stoke renewed fears of fresh loan defaults by some oil producers and prompt fresh analysis of the banks’ energy loan books. Barclays (LSE: BARC.L - news) , HSBC and Lloyds were all down in early trading."

Stocks in Russia, which has already slumped into a recession, were down partly due to the drop in oil prices. The energy-reliant economy had been pinning its hopes on securing a deal to freeze production.

Traders said only a Kuwait oil worker strike has prevented Brent from tumbling below $40 a barrel, while a US drilling cut to 2009 levels had prevented steeper falls there.

Barclays said Brent would likely average $36 per barrel during the second quarter of this year now, adding: "The meeting was a complete failure."

Producers such as Saudi Arabia and Russia are pumping near record levels and Iran, the only OPEC member not at the talks, is also increasing output following the lifting of international sanctions against it last January.