Global oil prices bounced all over the place overnight – falling sharply in Asian and early European trading, then rebounding – the reason – the expected confusion ahead of Wednesday’s meeting of OPEC which is still expected to reveal some sort of cap on production.
And if it doesn’t the warning has been given by traders and others in the markets that prices could quite easily fall by a third to $US30 or less a barrel before the end of the year – a repeat of what happened in late 2015.
Suddenly there are rising worries that a preliminary agreement reached in September for OPEC to reduce output to between 32.5 million and 33 million barrels a day may fall apart when OPEC ministers meet on Wednesday to finalise the arrangement. The support for it seems to be absent at the moment.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in January jumped $1.02, or 2.2%, to $US47.08 a barrel, down from the day’s highs, and after being down more than 2%.
And January Brent crude in London’s rose 90 US cents, or 1.9%, to $US48.14 a barrel after more falls earlier in the session. The settlement levels were off the day’s highs as well.
They in turn followed drops of 4% and 3.6% for US crude and Brent, respectively, on Friday, when Saudi Arabia said it would not attend a meeting overnight with non-OPEC producers until there was “a clear decision within OPEC” on the issue of production cuts.
Some OPEC members have looked to Russia to join in by trimming its output, Russia though wants hard evidence that OPEC will cut and cut in a transparent fashion before it commits.
Saudi Arabia’s energy minister Khalid al-Falih said on Sunday that he believed the oil market would balance itself in 2017 even if producers did not intervene, and that keeping output at current levels could therefore be justified.
But on Monday Iraq’s oil minister Jabar Ali al-Luaibi said he was “optimistic” of reaching a deal on Wednesday. That helped turn the market.
OPEC experts meeting to discuss details of a preliminary deal to limit oil output have not resolved disagreements over the production levels of Iran and Iraq, an OPEC source told Reuters overnight.
And the Financial Times said Saudi Arabia has set a high bar for any oil supply deal as it put more pressure on regional rivals Iran and Iraq to accept a larger share of output cuts.
"Saudi Arabia, the group’s de facto leader, has offered to cut 4.5 per cent from its production levels of about 10.5m b/d in October, according to two people familiar with its thinking.
"But in turn, Iran must freeze its production at about 3.8m b/d, while all members must accept the use of third-party production figures published by Opec, the people said. On top of that there must also be participation from producers outside the group, such as Russia.
“Iran, however, argues that only those countries that have ramped up production over the past two years — Saudi Arabia and its Gulf allies — should cut back now,“ the FT reported.
The Saudis tough stand risks a further drop in prices. Will anyone want to test that on Wednesday?
