Oil prices are set to plunge again after major producers failed to agree to a production freeze

No deal.
No deal.
Image: Reuters/Ibraheem Al Omari
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This story has been updated with oil prices plummeting.

Oil producers gathered in Doha today (April 17) failed to reach an agreement to freeze production in the glutted global crude oil market. As a result, oil prices—which have soared more than 30% on the prospect of a production freeze—are likely to plunge again.

Update: oil prices opened down more than 5% in Asian trading. Brent was down more than $2 a barrel, at $40.88, and the US-traded benchmark, West Texas Intermediate, to $38.15.

The producers—Saudi Arabia, Russia, Kuwait, and other OPEC members, but not including Iran—met most of the day but broke up toward evening without a deal. Saudi Arabia had been insisting there could be no agreement unless Iran froze production, too. But Tehran, which is just starting to recover from three years of oil sanctions, refused to agree unless it was permitted to first return to pre-sanctions production levels.

“Without Iran there was little hope of a real agreement,” said Jamie Webster, a Washington-based oil analyst.

Oil prices have been in a spiral for almost two years as Saudi Arabia, intent on halting the US shale oil revolution, refused to step aside and make room in the global markets for American oil drillers by cutting its own production levels. Saudi officials argued that a cut would have had no effect because the US would just keep producing and grab market share itself.

Prices, meanwhile, have fallen from a peak of $115.71 a barrel in June 2014 to below $30, before recently turning back up to over $40 a barrel. No one—least of all OPEC’s members—expected prices to fall that low, and to stay low for so long.

The freeze that had been on the table at Doha was technically meaningless, because no one, except Iran, can produce much if any more than they already do. Indeed, the entire oil complex has been producing oil at maximum levels in a desperate effort to hold on to market share. Russia is at a three-decade high of 10.9 million barrels a day; Saudi Arabia has been producing 10.1 million.

However symbolic, though, a freeze would have been a signal to the market that the producers are trying to enforce some discipline.

Now that even this gesture has fallen apart, analysts believe that traders will bid down prices hard.

In fact, many traders hedged heavily in the event this occurred.

“The days of agreeing to rejigger supply through agreements and deals seems to be receding for now,” Webster says.