Tue Nov 29, 2016 | 2:53am EST
Oil prices fell over 1 percent on Tuesday on market jitters over whether producer cartel OPEC would be able to hammer out a meaningful output cut during a meeting on Wednesday, aimed at reining in a global supply overhang and propping up prices.
Non-OPEC oil production giant Russia confirmed on Tuesday that it would not attend the OPEC gathering, but added that a meeting between the group and non-affiliated producers at a later stage was possible.
Brent crude futures LCOc1 were trading at $47.69 per barrel at 0741 GMT, down 55 cents, or 1.14 percent, from their last close.
U.S. West Texas Intermediate crude futures CLc1 were down 51 cents, or 1.06 percent, at $46.58 a barrel.
The Organization of the Petroleum Exporting Countries (OPEC) is meeting officially in Vienna on Wednesday to discuss a planned production cut in an effort to curb overproduction that has dogged markets and more than halved prices since 2014.
“Volatility is set to be high in the oil market in the days ahead,” Barclays bank said on Tuesday.
“I still think they need to do a deal even though my confidence has dropped back to coin toss levels,” said Greg McKenna, chief market strategist at Australian brokerage AxiTrader.
Intense negotiations would be needed on Wednesday to cement a deal, Goldman Sachs (GS.N) said.
“The latest headlines suggest that while there is a broad agreement on the rationale for a cut, political considerations and country level quota negotiations are so far preventing a deal from being reached,” the bank said.
There remains disagreement among OPEC members over which producers should cut by how much.
If OPEC agreed a production cut to 32.5 million barrels per day (bpd), down from 33.82 million bpd in October, crude prices would likely rise to the low $50s per barrel, Goldman said.
Both Goldman and Barclays said that oil prices would quickly move above $50 per barrel if a production cut is agreed by OPEC.
“If no deal is reached, our expectation of rising (crude) inventories through 1H2017 would warrant prices averaging $45 per barrel through next summer,” Goldman said.
However, the “price risk is likely skewed to the upside heading into Wednesday,” it added, saying a move to below $40 per barrel would be difficult to sustain.
In Asia, OPEC’s biggest customer region, oil importers made clear that they would not be happy with an artificial supply cut that hikes prices, and that in case of a cut they would seek more supplies from outside OPEC.
(Reporting by Henning Gloystein; Editing by Richard Pullin)
OPEC Discord Sends Oil Prices Lower
Would any output cut have the opposite effect down the road?
Crude-oil futures fell Tuesday in Asia due to growing doubts that the world’s biggest oil producers would reach a deal to cut global output.
All eyes are on the Organization of the Petroleum Exporting Countries meeting on Wednesday in Vienna. Internal discord could derail producers’ plans to reach an agreement limiting output, which has outpaced demand for more than two years.
In September, OPEC agreed on targets that would have translated into production cuts of 200,000 to 700,000 barrels a day. Analysts say if the Wednesday meeting ends inconclusively, oil prices could fall as low as $35 a barrel.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in January recently traded at $46.78 a barrel, down $0.30 in the Globex electronic session. January Brent crude on London’s ICE Futures exchange fell $0.30 to $47.94 a barrel.
The meeting is expected to begin at 10 a.m. Central European Time on Wednesday. OPEC’s secretary-general is scheduled to hold a news conference in the afternoon.
Oil prices edged up overnight after Iran and Iraq signaled they were willing to hold output steady. Both countries had previously said they wanted to increase output.
One of the key hurdles for the production accord is Russia, which isn’t a member of OPEC. Russia has indicated it is only interested in holding production at 11.2 million barrels a day. A freeze, it said, is essentially a reduction because it planned to increase output next year.
OPEC will also struggle to nail down production quotas for member nations as several countries—such as Nigeria and Libya—have requested exemptions because their oil production and exports have been hurt by militant attacks. In addition, OPEC doesn’t have the authority to make members comply with their production assignments.
“A production cut talk is likely to see a deadlock, especially with intransigence from various OPEC members,” said Barnabas Gan, an economist at the Singapore-based bank OCBC.
On top of that, some market participants say a collective production cut will have the opposite effect globally in the long run.
“Higher oil prices means non-OPEC producers will be more encouraged to drill for more oil, which will increase global supply and prices will be depressed again,” said Gao Jian, an energy analyst at SCI International.
In the U.S., where many oil producers were forced out of the market when prices dropped below $40 a barrel, there are signs of resilience. The latest forecasts from the U.S. Energy Department show domestic crude production is likely to hit 8.7 million barrels a day in 2017, which is 100,000 barrels a day higher than the previous estimate.
Production elsewhere is also climbing. North Sea producers, who have been troubled by rising costs and high taxes, recently increased output to a three-year high. That shows that any OPEC agreement would have a limited impact on the global crude glut, said Hamza Khan, head of commodity strategy at ING Bank.
“The whole concept is so silly,” Mr. Khan added. “If one part of the world cuts, supply will come online in other parts of the world…and it will come on very quickly.”
—Timothy Puko contributed to this article.
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Tags: Brent crude futures, Goldman Sachs, Iran, Iraq, New York Mercantile Exchange, oil prices, Oil prices drop, OPEC, Organization of the Petroleum Exporting Countries, production cuts, Russia, Saudi Arabia, U.S. West Texas Intermediate crude