Tensions between Saudi Arabia and Iran were blamed for the failure, which revived industry fears that major government-controlled producers will increase their battle for market share by offering ever-steeper discounts.

"OPEC's credibility to coordinate output is now very low," said Peter Lee, oil analyst at BMI Research, a unit of rating agency Fitch. "But this isn't just about oil for the Saudis. It's as much about regional politics."

Morgan Stanley said that "the lack of even a non-committal agreement after one was in place in February underscores the poor state of OPEC relations," adding that "we now see a growing risk of higher OPEC supply".

Sunday's meeting in Qatar's capital Doha had been expected to finalize a deal to freeze output at January levels until October 2016 in an attempt to slow ballooning oversupply.

But the agreement fell apart after top exporter Saudi Arabia demanded that Iran, which was not represented, should also sign up.

The Sunni Muslim kingdom of Saudi Arabia and Shia Islamic republic of Iran compete for influence in the Middle East, where they are currently fighting proxy wars in Syria and Yemen.

Brent crude futures fell as much as 6 percent in early trading on Monday before recovering to $41.29 per barrel at 0508 GMT, still down 4.2 percent since their last settlement.

U.S. crude futures were down 4.63 percent at $38.49 a barrel.

Oil prices have fallen by as much as 70 percent since mid-2014 as producers have pumped 1 to 2 MILLION barrels of crude every day in excess of demand, leaving storage tanks around the world filled to the rims with unsold fuel.

While tumbling oil prices hurt producer revenues, straining the budgets of energy exporters from Russia to Malaysia, they can also benefit consumers.

Asked whether the failed talks could result in further crude supply discounts for his company, Daniel Purba of Indonesia's Pertamina, a major importer of refined products, said: "We hope so."

NO END IN SIGHT FOR GLUT

With producers like Saudi Arabia and Russia pumping near record levels and Iran also increasing output following the lifting of international sanctions against it last January, there is no end in sight for the global oil glut.

Iran was the only OPEC member not to attend the Doha talks.

Despite calls on Saudi Arabia to save the agreement, Riyadh, OPEC's de facto leader, insisted that all 13 members must take part in any freeze.

"It seems that for the Saudis politics and national pride are still more important than the price of oil," said Ralph Leszczynski of shipbroker Banchero Costa.

Iran has refused to stabilize production, seeking to regain market share post-sanctions.

"Iran has no reason to auto-sanction themselves when they are just trying to get back some of the market share they lost in recent years due the western-imposed sanctions," Leszczynski added.

As a result of the failure at Doha, BMI's Lee said Brent would fall below $40 per barrel again, although he added that he did not expect prices to re-test this year's 13-year lows of just over $27 a barrel as private, non-OPEC producers, especially in the United States where drillers are suffering from low prices, are seeing their output fall.

Barclays said that Brent would likely average $36 per barrel during the second quarter of this year as a global glut continued unabated.

"This meeting and its outcome should have built... trust among producers for possible future cooperation and coordinated action. In this regard, the meeting was a complete failure," Barclays said, adding that "the failure of the talks gives the market another clear indication that OPEC's relevance in this market environment has faded."

Beyond the failed deal, however, traders said that an oil worker strike in Kuwait that cut its output from 2.85 MILLION barrels per day (bpd) to just 1.1 million bpd had helped prevent Brent falling below $40 per barrel.

(reuters.com)