Saudis want to inflict more pain on oil producers: Kilduff

No deal in Doha leaves OPEC in disarray: Pro
No deal in Doha leaves OPEC in disarray: Pro
Why did the Doha deal fall apart?
Why did the Doha deal fall apart?
No deal in Doha... oil futures drop
No deal in Doha... oil futures drop

Crude markets are poised to become more volatile as Saudi Arabia flexes its muscles in the region and seeks to turn the screws on U.S. and Iranian oil production, Again Capital partner John Kilduff said Monday.

Negotiations to freeze crude production at January levels fell apart over the weekend after Iran snubbed the gathering and top oil exporter Saudi Arabia refused to follow through with the deal without Tehran's participation.

Kilduff pinned the aggressive stand on Saudi Deputy Crown Prince Mohammed bin Salman. Ahead of the Doha meeting, the 30-year-old prince said Saudi Arabia could increase production by 1 million barrels per day.

"I think there's going to be one more beat down for prices that's really going to inflict the kind of pain the Saudis really want to [inflict] to the rest of the higher cost producers," Kilduff told CNBC's "Squawk Box."

OPEC's decision in 2014 to maintain high output levels rather than cut production to balance a market oversupplied by about 1.5 to 2 million bpd has been widely seen as a bid to pressure high-cost producers like U.S. shale oil drillers. U.S. production had surged through last year, contributing significantly to global oversupply.

The number of rigs in U.S. oil fields has fallen by nearly 80 percent from a peak of about 1,600 in October 2014 to roughly 350 last week. Oil production has fallen by about 600,000 bpd from a high of nearly 9.7 million bpd last year.

The Saudis are "not done with us yet. They are not done fixing our wagon yet," Kilduff said, referring to U.S. producers.

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The Saudis are also targeting regional rival Iran, which has ramped up oil exports after sanctions on the country were lifted, analysts told CNBC.

While key countries in the Gulf Cooperation Council were prepared to reach a deal without Iran, it had become clear in recent weeks that Saudi Arabia would not agree to a freeze unless Tehran participated, said Helima Croft, RBC Capital Markets global head of commodity strategy.

She noted that Sunni-led Saudi Arabia and Shiite-majority Iran support opposing sides in civil conflicts in Syria and Yemen. The countries broke off ties following an outburst of anti-Saudi demonstrations in Iran last year after Saudi Arabia executed a prominent Shiite cleric.

"I think that was the cloud that hung over negotiations. You just can't get these two adversaries together," she told CNBC's "Squawk on the Street" on Monday.

Nigerian Oil Minister Emmanuel Ibe Kachikwu told CNBC a number of producers felt any effort to stem oversupply would not be effective unless Iran agreed to freeze output. He acknowledged the terms of the proposed deal had changed overnight between Saturday and Sunday.

"There was an initial draft that everyone had sort of seen and came to the meeting on the basis of that draft. There was a lot of consensus around it," he said. "And then this one was a different draft, which tended to create a link to Iran's compliance with the freeze obligation."

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Iran and Libya were the only OPEC members that did not attend the meeting.

Iranian Central Bank Governor Valiollah Seif told CNBC through an interpreter that it is not "fair" or "logical" to ask Iran to freeze production as it seeks to return to presanctions output levels.

"Right now Iran is just trying to take back the quota it is entitled to get, so we are going to do that, and this is the main direction of our economy," he said.

Doug Terreson, head of energy research at Evercore ISI, said Iran and Saudi Arabia should consult one another to create a path forward ahead of an OPEC meeting in June. But he said he is not expecting the group to come to an agreement at that gathering either.

"In that scenario, we think that the oil market is likely to rebalance the old-fashioned way, with lower oil prices leading to stronger demand and weaker supply," he told CNBC's "Fast Money: Halftime Report."

Evercore believes that process is underway, and sees ending 2016 at $45 to $50 per barrel.

A strike among oil workers in Kuwait is temporarily supporting oil prices, but the downward pressures on crude futures will be "intense" as the Saudis compete for market share with other producers, Kilduff said.

The last key to the further pressure on oil prices could be slowdown in crude demand following the International Monetary Fund's downward revision to its world growth forecast last week, Kilduff said.

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