Dohaha, Slippery Oil Laughs at Nearly Everyone — Myself Included

By Tairo Bonilla (Own work) [CC BY-SA 3.0 (], via Wikimedia Commons

As predicted relentlessly here, the scuttled meeting in Doha to limit oil production broke up with no agreement at all. The meeting foundered like a tanker snagged in the dessert sands because of the singular obvious factor that should have sunken all hope weeks ago but did not: Saudi Arabia said, “No deal without Iran.”


Doha disaster predictable yet not the disaster that was predicted


That Doha would hit the rocks was predictable because 1) The Saudis repeatedly stated in advance of the meeting there would be no deal without Iran; 2) There was no rational justification for the widespread belief that the Saudis were bluffing, given their desire to restore their own lost market share and their desire not to create a window for Iran to build its share back up while everyone puts their transmissions in neutral in order to wait for Iran to catch up with the fleet.

Iran has propelled itself forward toward 4 million barrels a day more quickly than a number of prognosticators thought was possible. Two months ago a number of analysts were saying it would take Iran a year to get production up to  3 million barrels per day. Iran passed that mark in just a couple of months. Their progress to date already offsets all of the slack that would have been created in the market by the ongoing decline in US oil production.

It’s absurd the people did not see with certainty that the meeting would founder. They simply didn’t want to believe Saudi Arabia would stay on the course that it repeatedly stated it would take. They didn’t believe the Saudis were ready to crash the market if that is what it takes to retain their market share and keep Iran in a weakened position. That shows the market is operating in a realm of make-believe and denial. Even after the meeting crashed, the market continues acting as if nothing happened.


Iran seems to think that Saudi Arabia is more interested in placing obstacles in its return to the global energy market than an actual rise in oil prices.


Of course, it is. That is what I’ve been saying all along, and it boggles my mind that so many experts don’t see that just because they don’t want to. If the price of oil were the Saudis’ big concern, they wouldn’t have started down this path of refusing to curb their own production in the first place. They would have done what was necessary to support the price of oil right off … just as they have always done until recently.

Why would anyone dream the Saudis went through all this pain just for some short-term reason of throwing a little chaos into the world? Until they reach their objective — be it to recapture market share or to quash Iran — why would they change course? They knew the price would go down when they started down this path. That’s why you have talks at OPEC in the first place — so everyone else can talk the Saudis into limiting or reducing production in order to support the price of oil.

This time, the Saudis said, “No. We will ONLY limit our production after EVERYONE else limits theirs. We’re no longer going to be the ones who cut back only to see everyone else take on more market share when we do cut back. Those days are over.” And, OF COURSE, they want to hurt Iran as much as possible at the same time. They hate Iran!

So, how could the majority of the oil buyers not have seen this coming? It’s obvious they didn’t see the Doha shipwreck coming, given that they bid up the price of oil day after day in anticipation that the meeting would limit production.

Now the situation is different to where almost no one expects any positive change in positions before the next meeting:


The differences between Opec … members that led to Sunday’s failure in Doha to reach an agreement on oil production will likely persist until the next meeting in June, analysts said…. “I would expect next Opec meeting in June is going to be very divisive and very unsuccessful,” said Edward Bell, a commodity analyst at Emirates NBD, speaking about the upcoming Vienna meet. (Gulf News Energy)


Thats the majority opinion of the many articles I’ve been reading  … and oil prices are still going up anyway.


Outcome of Doha was the world’s biggest ho-hum


What I didn’t anticipate about Doha’s failure and what nobody anticipated (that I saw) was that a total failure of the Doha meeting would end with oil prices going up the next day. Many major investment firms had predicted that a failure at Doha would cause a crash in oil prices right away. Even those who were convinced Doha would limit production, believed that the meeting’s failure, if it happened, would be devastating to oil prices:


Since the Doha summit was put on the calendar several weeks ago, a production freeze looked all but certain…. That was particularly true since the objectives for the Doha meeting were not all that ambitious – a freeze at record levels of production for nearly all parties involved was never going to have a major impact on the global oil supply imbalance. (

It is hard to overstate how surprising the outcome was to the world of energy analysts and market watchers. WTI and Brent prices are set to plunge on Monday, reflecting the failure of OPEC to reach a deal, as oil traders had largely baked in the production freeze deal into the price for crude…. “This is an extremely bearish scenario.” Abhishek Deshpande, an oil analyst at Natixis, told The Wall Street Journal. “Prices could touch $30 a barrel within days….” Russia’s energy minister Alexander Novak expects the oil market will take an additional six months to find a balance because of the collapse of Doha. (

Iraq, to be sure, was quite displeased: “We are very, very disappointed,” said Iraq’s representative. “This will effect the price and our earnings. We wanted a deal….” If there is no agreement, then expect a sharp oil market sell-off on Monday. (Zero Hedge)

Negotiations between 16 oil producers in Doha ended without any agreement on limiting supplies, a diplomatic failure that threatens to renew the rout in prices. (Bloomberg)

The deal’s demise will probably do little to alter supply-demand fundamentals as producers committed to a freeze including Russia and Iraq were already producing at record levels. But it’s left a coordinated response to the slump [in oil prices] in ruins, and that will send an important message to the market: it’s every country for itself again. (NewMax)


Somehow the market missed the important message:


The oil markets … already seem to have forgotten about the failed Doha summit this weekend, with WTI and Brent regaining all of the ground it lost over the past two days or so. (


Yes, they have. The oil market dropped for less than a day, and then it yawned for the rest of the week, as if it couldn’t care less about the long-anticipated Doha meeting.


On Sunday, many thought the collapse of Doha would have provided that catalyst, leading to a sell off when the markets opened on Monday. Instead, prices only moved down briefly before bouncing back up. The most likely reason is that oil traders saw other geopolitical events that more than made up for Doha. First came the news that oil workers in Kuwait knocked off somewhere around 1.5 million barrels of oil production per day (mb/d).


Many shocked by how the Doha deal turned out


Who would have thought that Saudi Arabia and Iran would have killed off the chances of a deal to stop oil prices and therefore share prices slumping? (Switzer Daily)


I wasn’t surprised by that at all. I was absolutely certain this was 1) a deal the wouldn’t happen and 2) a deal that wouldn’t accomplish anything even if it did happen. However, I was also as certain as everyone that, if the deal didn’t happen, oil prices would crash. And I was wrong!

Tyler Durden at Zero Hedge saw the collapse as inevitable as I did:


The most anticlimiatic culmination to the most farcical “agreement” of 2016, one which could have been seen a mile away by any carbon-based trader not housed in a collocated, supercooled facility in Secaucus, has taken place and here is the “shocking” result: OPEC, NON-OPEC MINISTERS FINISH OIL TALKS IN DOHA, NO AGREEMENT – RTRS


While the failure of the meeting seemed likely to the point of obvious, what it did to oil prices surprised just about everyone.

Naturally, nearly everyone I read also thought the stock market would go down in response to a failure of Doha meeting since the market has been tracking in lockstep with the price of oil. However, since oil did the opposite of what people on both sides expected, the market did its thing of following oil and went up, too.


Stock investors gush over oil’s spurt


The stock market got a case of the thrills when Doha hit ground and oil prices rose anyway. The Dow jumped up to 18,000, breaking significantly beyond that downward trend line I mentioned for its ceiling. That’s a major breakthrough that defies my statements earlier that this was just a bear-market rally.

But does the strengthening in the price of oil and the resulting jubilance in the stock market make any sense? In my opinion, it proves both markets are running on the fumes of euphoria and wishful thinking. The end of the Doha meeting spelled nothing but trouble for oil prices.

I should point out that oil didn’t go up because Doha ran aground; it went up in spite of Doha’s failure. It went up because a strike in Kuwait promised a sudden drop in oil production. I would say the failure of Doha far outweighs a strike in Kuwait. So, when I see oil go up because of Kuwait, after such a major failure to resolve the core problem, I see a market that has lost its last attachment to rationality.

The strike that turned oil and stock markets all giddy, didn’t even survive twenty-four hours before its threat to oil production in Kuwait went kaput. That’s when irrationality sailed off the charts: Since a strike in Kuwait caused the price of oil to go up immediately after Doha’s failure, oil should have crashed hard as soon it became clear the strike was over and did NOTHING to limit Kuwait’s production; but it didn’t. Once again, oil breathed a big ho-hum, and has remained in its raised price zone for days afterward.

This kind of irrational exuberance either reeks of stupidity or else market manipulation. (No one ever said, however, that markets were either smart or rational; but the more irrational they are, the shakier the economy, as stupidity never leads to consistently positive results.)

And, then, as if all of that was not irrational enough, the failure at Doha led to threats that there major oil producers will actually increase production out of spite … and the prices of oil still stayed up!


Production increases planned in retaliation for Iran’s refusal to join production freeze


After [Saudi Arabia’s] comments thwarted supply negotiations in Doha, oil traders are weighing another implied warning from the Saudi deputy crown prince: the threat of an intensifying clash with Iran over market share…. “It was an indication to Iranians that, look guys, if you’re not joining the table we have enough power to crank up production,” Abhishek Deshpande, an analyst at Natixis SA in London, said in a Bloomberg Television interview Monday. “You can question how much more they can crank it up by, but the chances are that, now there’s no freeze, the Saudis will go ahead and increase their production as they were planning.” (Newsmax)


Saudi Arabia has said a few times that it has the capacity to easily increase production by about a million barrels a day.


“Saudi Arabia’s refusal to sign the agreement just proves that they would not mind if prices stay lower for longer,” Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt, said by e-mail. “I would not even be surprised if they hike production further as a ‘revenge’ to Iran’s reaction. They can withstand lower oil prices longer than most of the other producers.”


But to that, oil breathed another underwhelming ho-hum. Then Russia threw out a similar threat this week:


Russia said it was prepared to push oil production to historic highs, just days after a global deal to freeze output levels collapsed…. “They (Saudis) have the ability to raise output significantly. But so do we,” Russian Energy Minister Alexander Novak told journalists…. He said Russia was “in theory” able to raise production to 12 million or even 13 million bpd from current record levels of close to 11 million bpd. (NewsMax)


Again, oil sighed a h0-hum.

Venezuela fears that this game of Saudi Arabia getting revenge on Iran for not joining and Russia getting revenge on Saudi Arabia if they do increase production will cause a crash in oil prices between now and the next meeting. Venezuela’s oil minister suggested oil prices may go back down to $30 per barrel before next month’s meeting in Vienna.


“I anticipate that, without a deal, prices from now to OPEC will drop and it’s not the same to sit down at the table with Brent at $43 per barrel as it is when it’s below $30…. We are close to 90 percent of inventory levels already. … We could see a steep fall in oil prices in the next few weeks.


And oil prices breathed another ho-hum.

As if all that were not enough, it turns out that, during the run-up to the Doha meeting, the major players have already been ramping up production since no agreement was actually yet in place. All they had (as I’ve pointed out) was an agreement to TALK about limiting production:


First it was the Saudis; then Russia announced another month of record oil production. And now it is Iraq’s turn. According to the state-run Oil Marketing Co., Iraq increased crude output to a record level in March, ahead of the long-awaited April 17 meeting in Qatar…. The 500,000 barrel increase in monthly barrels has made up almost entirely for the 600,000 barrel decline in US shale output….

An expansion at Saudi Arabia’s Shaybah field should add 250,000 barrels a day as early as June, while the Khurais field could contribute another 300,000 barrels by the end of 2017. State-owned Saudi Aramco says this will let it … maintain a production capacity of more than 12 million barrels per day, 2 million barrels above its current rate. For Kuwait and the U.A.E., the goals are even higher. Kuwait plans to raise production capacity by 5 percent from 3 million barrels a day by the third quarter, and to reach 4 million barrels by 2020. Abu Dhabi means to lift production capacity to 3.5 million barrels a day by 2017 from about 3 million. (Zero Hedge)


So, production has done nothing but expand in the Middle East during the past two months by more than enough to offset any falling production in the West. Most players in the Middle East are activity planning additional production increases. A meeting to freeze production at these ever-increasing levels failed completely. Two of the major players have now stated they are thinking seriously about ramping up production even more …. And oil prices keep floating upward.

Someone must have programed the algorithms of the robo-buyers to go up no matter what the news is for oil’s over supply. It is almost as if the more the Middle East does to expand production, the more the prices of oil rise.

I think most readers here know or have, at least, heard that irrational exuberance is a precursor to all great market crashes. If the above scenario is not proof that market exuberance has reached the zenith of irrationality, I’m not sure that anything could provide proof in the face of such irrationality, for it is the irrational who will be judging the proof harshly.


More post-Doha reading on oil wars and oil price wars:


[amazon_image id=”B00CMDPTA4″ link=”true” target=”_blank” size=”medium” ]The Prize – An Epic Quest for Oil; Money & Power[/amazon_image][amazon_image id=”B004S95I4M” link=”true” target=”_blank” size=”medium” ]Blood and Oil – The Middle East in World War I[/amazon_image][amazon_image id=”B00HKKX2L2″ link=”true” target=”_blank” size=”medium” ]Oil: Black Gold[/amazon_image][amazon_image id=”B01A7OLKHK” link=”true” target=”_blank” size=”medium” ]Frack Us[/amazon_image][amazon_image id=”B0037VY1ZO” link=”true” target=”_blank” size=”medium” ]Crude Independence[/amazon_image][amazon_image id=”B00DY2T6BA” link=”true” target=”_blank” size=”medium” ]Split Estate[/amazon_image]


  1. Ping from steve jones:

    Some people I know think both Games of Thrones or House of Cards are too bleak. Well nothing could be bleaker than the current reality of i) geopolitics in the Middle East ii) the world monetary system, iii) US politics….the list goes on.

    • Ping from Knave_Dave:

      When you KNOW the Federal Reserve has considered rigging the stock market to be its main mission, and you KNOW this because THEY are the ones who told you so directly, and when you KNOW that they are rigging the government bond market to keep the interest on US debt artificially low, and you KNOW that because THEIR balance sheet shows those bond purchases … THEN you really have to wonder what else they are rigging to keep the economy looking good.

      Are there any honest markets left at all, or is the entire economy a Game of Golden Thrones. I’ve speculated before that the only reason central banks own gold and other precious metals is so they can control the gold market — make it go down if enough people start fleeing their proprietary money for the most natural alternative. Why else would they own so much gold? It’s certainly not to back the dollar, as they haven’t given gold to people in exchange for their dollars for more than half a century and aren’t about to start going back that route ever after having made it this far away from a gold standard. So, I see it as ballast they can throw off (dump on the market) to kill the competition whenever things start going awry for their own money.

      And, if gold and other precious metals, why not other precious minerals … such as the liquid kind? Some of their member banks are feeling the pinch big time because of oil prices, so maybe the central bank has decided to save them by jacking up the price of oil. They have unlimited resources to do so.

      So, you are right that the centrally planned economic picture looks quite bleak when you start to realize that there may be no market that is considered outside of the Fed’s right to manipulate, should the need arise. Every single part of the economy may be a centrally rigged game. Now that we know stocks and bonds were and have seen that Deutsche bank was rigging the precious metals bank (and how many of their colleagues were doing the same thing who didn’t get caught?), then why not oil and everything else?

      House of Cards starts to look a little small compared to that game of building castles out of cards.


  2. Ping from Auldenemy:

    The Doughnuts Doha Discord (which is a more accurate term for what took place), should have indeed resulted in oil prices dropping. There again, in a world infested with central and private banks in full on stock market manipulation mode, whose to say forces like the PPT didn’t jack oil up, precisely to stop a large oil price drop following the Doha no agreement to cut back.

    • Ping from Knave_Dave:

      Exactly. Why would we even think they wouldn’t when two Fed officials have stated that BY INTENTION the Fed’s FOMC was FRONT-RUNNING the stock market. We used to have regulations that prevented banks from investing in stocks (and thereby central banks from indirectly manipulating the stock market by giving money to their member banks to invest). Next, the Fed will be deciding what companies to favor. Maybe they already do. Who knows? How can you tell?

      Along the process of deregulating, we removed those important barriers. As a result, we have this mess where central banks have the power to create unlimited amounts of money in a single day based solely on their own discretion with no supervision by any other entity as to what they are doing and deposit it in banks with “suggestions” of where the money should go. There is NOTHING to stop the Fed from deciding to create $100 billion and giving it to member banks, saying, “We’ll give you this money when you show us you’ve purchased that much in oil” so that the banks know the money goes straight into the oil market.

      I mean, that is exactly what they overtly did with bonds. They were front-running the bond market by saying, “If you buy these government bonds, we’ll buy them directly from you the next day so that we are not directly buying the government’s debt, and we’ll create as much money in your reserve account as what you spent on the bonds plus half a percent.”

      The same thing was happening with stocks, even as the Fed originally denied it was pumping up the stock market.

      So, it’s no big conspiracy theory, when you see total nonsense pricing (bad news is good news) in the oil market to ask, are they now moving on to doing the same thing in this market? Why not? What’s to stop them? Clearly US banks that are members of the Federal Reserve System are being hurt by the oil price war, so they can justify this as another “intervention” they need to do to save their own banks. Maybe that is exactly what the surprise “expedited” meetings of the Federal Reserve were about just before the Doha meeting and what the Fed’s rushed closed-door meeting with the president and vice president was about — what to do if Doha failed.

      If not the Fed, then why not some other central bank of some country being hurt by the oil price crush?


  3. Ping from Jay:

    How are you surprised oil didn’t tank after the meeting in Doha? That meeting would not do anything to the oil market except having OPEC agree to not increase production. They are already pumping at all time highs and there rhetoric about increasing production is a joke or false threats. Plus these countries always cheat so if nothing is enforcing it, it is basically meaningless. Prices are going up because the current price is way below expansion level for most of the world regardless of what these oil analysts are spewing. USA production is dropping and will end up falling off a cliff in next 3-4 months due to depletion. Only reason it hasn’t yet dropped off a cliff is because the gulf projects that came online throughout last year have slowed there fall in oil output. Us Rig counts are way down / World rig counts are way down( excluding Us/Canada rigs). Demand is still going up ( catching supply). 400+ billion in Capex has been cut since oils decline. What do you think that is going to do to prices in a year or 2? Severe price shock where everyone will be wishing that prices were only at $100 a barrel. Not to mention the EIA saying the world was producing 1.8-2.0 million barrels a day more then demand in 2015, yet are missing or cant locate 800,000 barrels per day of that oil for all of last year. There logarithmic calculation for production and demand is terrible, meaning the 800,00 barrels per day never existed in the first place. Which would then put oil supply in excess of 1.0-1.2m barrels per day in 2015. Demand is expected to increase by 1.2million barrels per day this year essentially eliminating extra supply. The declines from the USA / Venezuela, ect ect will offset any extra amount added to the market by iran. It would be nice if oil would just go up to 60-70 range and stay there. That way it promotes production ( not so much that this glut happens again) and keeps gas prices low enough that people are somewhat happy. There has to be a happy medium, $110 is to high and $45 is to low.

    • Ping from Knave_Dave:

      I think you completely missed my points, Jay. I’ve always said (and did so again here) that the Doha meeting was a joke and that it would accomplish nothing toward diminishing the oversupply because, at best, it would freeze in the current rampant overproduction.

      However, most of the oil speculators were bidding up the price of oil because they foolishly thought the meeting would accomplish something. I didn’t even think the agreement would happen (and it didn’t), but I was surprised that the oil speculators continued pushing up the price of oil even after their delusion was broken.

      US oil production has not fallen off much. (The number of rigs opening new wells has dropped way off, but most of the existing wells are pumping at full capacity, regardless of price. The drop-off of oil rigs cuts future supply but has no effect on immediate supply.) Iranian oil production increases have matched US oil production decreases, so the oversupply continues. Meanwhile Russia and Saudi Arabia are now threatening to increase more.

      Demand is also falling. Not sure where you get that it is rising. Oversupply of refined gasoline is backing up all over the place because there is not enough demand to soak it up.

      A year or two from now is a different story entirely. I would expect prices to skyrocket in a year or two after the number of producers collapses. The point is that the collapse is not as big as it will be. There is more to come, and that is why prices will skyrocket down the road due to overcorrection. And the collapse of more oil producers could be devastating to the banking and bond industry.

      I agree that $60-70 is the right price, but that’s not likely to be the outcome. We have a price war going on that will take prices down hard and eliminate competitors so that those who survive can charge higher prices in the future. It’s not about what should be but about what will be.

      • Ping from Mario Rancho:

        Dave where is all of this oil going?? We have heard for months that tank farms are full or damn near. We have seen that ocean tankers are being delayed or denied port access to unload. Now countries are threatening to pump even more, where in the world is this oil going to be stored and ho do we not already have over flows and spill overs at the tank farms?? And lastly what happened to “maintenance” season at the tank farms that were going to further threaten storage capacity??

        • Ping from Knave_Dave:

          First, let me say, Mario that I was wrong in my call about the perfect storm hitting oil in the Ides of March. I gave myself some attitude in time because I only intended to say that those forces would start to come together then and that we’d see them grow into such a storm; but it didn’t happen that way.

          I take some comfort in the fact that everyone seems surprised by what happened after Doha. No matter whether they were people who believed as I did that Doha was a joke and would never end in an agreement (and that even if it did, a production freeze was meaningless when a production cut is needed) or if they were people who believed Doha would result in an agreement that ended the oversupply problem, both sides (everywhere that I read) said that failure of an agreement would cause prices to crash.

          Pretty much everyone thought oil prices were going up because of talk of an agreement. They thought that because prices made their movement up when the rumor started about the agreement. Everything more hopeful word of the agreement came out, prices seemed to rise faster.

          It seemed foolish to me that people would bank their hopes on an agreement that was never going to happen, but now it appears something else was pushing the price up because clearly the agreement didn’t even come close to happening, but prices went up even faster. Some said that was because of an oil strike in the United Arab Emirates, but the strike was resolved in about a day, and still the prices went up.

          It’s a little hard to believe prices are going up because of general belief that the oversupply is correcting itself, because they particularly go up when some new desperate hope of a supply correction emerges. Maybe that’s what it is, and these bits of desperate hope just augment the belief in supply correction, boosting it.

          Anyway, it doesn’t seem to even matter what happens with oil supply because, even when threats of much greater oversupply happen (as you just mentioned) … the price goes up then, too.

          That makes me suspicious that the market is being rigged by some major sovereign players, just like Deutsche Bank rigged the precious metals market. There are a lot of nations that have good reason to drive the price up … like the Chinese and Japanese buying their own stocks to save their markets.

          Not saying that is happening. Maybe it is just irrational exuberance. Maybe I’m also completely wrong about oversupply being on track to continue building. What I was clearly wrong on was my timing. I cut myself a little slack on that for a bit in case I was just off a nudge, but enough is enough. Oil seems programed to go up no matter what, and I have no evidence of a rigged market other than oil’s price changes look strange to nearly everyone I’ve been reading on both sides of the question about which way oversupply is headed.

          Gasoline is said to be in serious oversupply, so now we have backed up finished products jamming things ahead of the backed up resource that they come from. There has been some backing up of tank farms in those Asian areas where gasoline is oversupplied.

          Some say gasoline demand is making its usual summer rise, but others make a strong case that demand is diminishing, which should be catastrophic because gasoline demand almost always rises as summer approaches, but I’m not sure the oil pricing mechanisms right now would even care about that.

          If the tanks do fill up, I see no way of averting a crash in oil prices with nowhere left to put it, but only the gasoline storage tanks in some parts of Asia have reached maximum capacity so far.

          I think it’s a highly precarious situation whether its due to insanely irrational exuberance of to the market being rigged, just like gold and silver, just like the money markets, just like the stock market by central bank money … but how can you know?

          We seem to be approaching a situation where all markets are rigged by central planners. In one sense, the oil market has always been rigged by the cartel, but right now OPEC appears to be non-functioning, so what has taken over its role of controlling the price of oil?

          Welcome to the Blog, Mario. Good questions that have me scratching my head at present.


  4. Ping from Chris P:

    I’m sure the central banks all see the debt exposure to the energy sector. The great 8 arm squid will need some more arms soon to keep moving all the knobs and controls to keep this great recovery going. Irrational Exuberance would be an understatement here, I would have to call it Psychotic Mania Syndrome thus the acronym would be CBPMS

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