Oil Flat on Lower Inventory, OPEC Fractures (USO, UCO)

Iraq has to up its crude output because dwindling oil prices and the fight against Islamic State have left “a huge hole” in the economy, Foreign Minister Ibrahim al-Jaafari said Tuesday, as the OPEC cartel scrambles to agree a production cut deal.

WTI for January delivery lost as much as 29 cents to $47.74 a barrel on the New York Mercantile Exchange and traded at $47.97 as of 8:51 a.m. London time.

OPEC is due to meet on November 30 to coordinate a cut, potentially together with non-OPEC member Russian Federation, but there is also disagreement within the producer cartel as to which member states should cut and by how much.

Even if an agreement is reached, some analysts say that the cuts in output will not be enough to prop up a market that is swimming in excessive supply.

Oil declined in NY as OPEC members failed to agree on the role of Iraq and Iran in a supply deal just one week before the group’s official summit. The falls reported by both the EIA and the API weighed on crude oil prices.

“With investors optimistic about OPEC reaching an agreement on production cuts, oil prices should continue to rise in trading today”, ANZ bank said on Tuesday.

Consultations with OPEC are going positively and Russian Federation will hold talks with a number of oil-producing non-OPEC nations, including Kazakhstan and Mexico, the minister said.

While most OPEC members support a cut in production, Iran is said to oppose such a move.

Oil prices have been volatile since OPEC announced a tentative plan to cut oil production in September.

But analysts have doubts whether, and to what extent, an output cut will be agreed upon. The technical meeting will prepare for OPEC’s ministerial meeting November 30 in Vienna. US crude fell 77 cents, or 1.6 percent, to $47.47 per barrel.

However, sources also said the representatives of Iran, Iraq and Indonesia had expressed reservations during talks that continued for 11 hours about their level of participation in what would be the group’s first supply-limiting deal since 2008.

That was compared to forecasts for a stockpile build of 0.67 million barrels after a build of 5.27 million barrels in the previous week.

The deal appeared to be imperiled as Iran and Iraq jockeyed for exemptions from a production limit.

However, despite the growing optimism, a number of economists were eager to point out that, should Opec members not agree to curb production, oil markets could face a severe oversupply by early 2017.