That 1986 Retro Feeling’s Haunting the Oil Market
Saudi’s decision not to cut production bears semblance to 1986 when, faced by threat from Soviet Union, it had to boost output Oil Plunges After Output Talks Fail
New York: If there’s a certain retro feeling in the air, it’s not just because everyone is talking about a Donald Trump presidential run and a song called “Me Myself & I” is in the charts. Oil markets are also starting to have a distinctly 1986 feel to them.
The collapse of the weekend’s oil talks in Doha heralds a phase where open spigots will drive prices lower once again. Brent crude fell as much as 7% when it opened after the meeting broke up in disarray. Saudi Arabia and other Gulf producers refused to cut production unless they could get a matching agreement from an Iran that hadn’t even bothered to attend the talks. Iran has very litt- le incentive to agree to such demands. As a relatively new entrant, Tehran will take whatever prices it can get. It may even choose to undercut the existing players where it spies an opportunity.
Back in 1986, Saudi was focused on the threat of the Soviet Union’s booming, higher-cost production, and boosted output by 1.6 million barrels a day to flood the market and leave itself as the strongest player standing. The 45% increase in production sent prices from north of $30 a barrel to south of $15, with some heavier, sour grades changing hands for well below $10.
Saudi Arabia will be hoping that history can repeat itself 30 years later, but its advantages aren’t quite as bulletproof as they were back then. — Bloomberg
Oil fell after output talks on Sunday between the world’s biggest producers ended without any agreement on limiting supplies. Brent was down 15 cents, or 0.4%, at $42.95 a barrel. It had fallen $3 earlier in the session.