Oil prices have steeply dropped towards $40 after a deal to freeze oil output by the world's biggest oil producers fell apart.

The market response came on Monday, just hours after Iran, which is trying to ramp up output as international sanctions are lifted, stayed away from a weekend meeting of 18 OPEC and non-OPEC oil producers in Doha, Qatar. 

Saudi Arabia said on Sunday that it would not back the deal if Iran was not involved.

Kazempour Ardebili, Iranian OPEC governor, insisted on Monday that Tehran was justified in not freezing its own output, but urged other oil producers to continue talks on an output freeze to prop up crude oil prices.

"We support cooperation between OPEC and non-OPEC member countries and efforts to bring stability to the oil market, and we urge all producers to continue their negotiations," Ardebili said.

The failure of talks has revived oil industry fears that major producers are going back into a battle over market share that has already driven prices to as low as $27 per barrel in January from highs of around $115 in mid-2014.


READ MORE: OPEC meeting ends without deal on oil production freeze


Saudi Arabia's top oil official, Deputy Crown Prince Mohammed bin Salman, threatened last week to raise output by as much as two million barrels per day (bpd) from the current levels if the deal freeze was not reached by all members.

That would amount to more than 2 percent of global supply and significantly exacerbate the glut. Iran also wants to raise output by at least 0.5 million bpd. Iraq and Libya could also add barrels to the market.

Low oil prices have helped the global economy but some international financial organisations have warned that a very prolonged period of low prices could damage global growth.

However, Fadel Gheit, a senior energy analyst at Oppenheimer & Co, said the recent cutbacks in investments would help rebalance supply and demand in the longer run, whatever the short-term disruption caused by the Doha meeting failure.

"We believe prices will rise regardless what OPEC does or does not do, as US shale oil production, not Saudi Arabia, will be the new swing producer," Gheit said. "We believe oil prices will rise to a sustainable level closer to $60, the new normal, not $100 and not $40 either."

Source: Agencies