Oil back below $40 as Iran dashes hopes for quick deal on output

Iran oil minister said OPEC member would discus only when its output reached 4 mn bpd; currently its 2 mn bpd

Oil fell on Monday after Iran dashed hopes of a coordinated production freeze any time soon, returning bearish sentiment to the market over a supply glut that has sent prices crashing.

Global benchmark Brent crude futures fell back below $40 a barrel, trading at $39.70, down 69 cents or 1.7% on Friday's close. Brent hit a 12-year low of $27.10 in January.

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US crude was down 82 cents at $37.68 a barrel.

"Oil is down because Iran said they would only join the output freeze group once they reached production of 4 million barrels a day (bpd)," said Tamas Varga, oil analyst at London brokerage PVM Oil Associates.

Iran's oil exports are due to reach 2 million bpd in the Iranian month that ends on March 19, up from 1.75 million in the previous month, oil minister Bijan Zanganeh said on Sunday.

Zanganeh poured cold water on hopes for a quick deal on freezing production, saying the OPEC member would join discussions only once its own output reached 4 million bpd. Zanganeh is to meet his Russian counterpart Alexander Novak in Tehran on Monday, according to news agency reports.

Saudi Arabia appeared to have stuck to a preliminary deal with some other producers to freeze output, as its crude production held steady in February at 10.22 million bpd, an industry source told Reuters.

OPEC members and non-OPEC producers are likely to hold their next meeting to discuss an output freeze in mid-April in Doha, OPEC sources told Reuters.

A March 20 meeting in Russia, which was part of an earlier plan, now looks unlikely.

Worries about demand fundamentals moved back into the spotlight as investment bank Morgan Stanley warned that a slowing global economy and high production would prevent any sharp rises in oil prices.

"Oil prices now seem to have bottomed, even though they are likely to stay subdued for the rest of this year before starting to move higher in 2017," the US bank said in a research note. It added that cheap oil had not provided the boost to growth that many had hoped for.

"When oil prices are falling below production costs, the income gains for consumers will be smaller than the costs to producers, and falling oil prices become a negative-sum game," it said.