Oil prices drop amid doubts over OPEC output cut

“If no deal is reached, our expectation of rising (crude) inventories through 1H 2017 would warrant prices averaging US$45 per barrel through next summer”, Goldman said, noting a move to below US$40 per barrel would be hard to sustain. Prices likely will be unable to recover, on that basis, until late next year, especially with increasing volumes expected from Iran, Iraq, Russia, and Azerbaijan, among others, without even mentioning USA shale players who will re-emerge like summer flies on a warm late fall day.

Whether OPEC decides to cut or not at their meeting Wednesday will influence energy prices around the world as the cartel remains the dominant force in oil markets.

“We’ve been in a lose-lose situation on a global energy basis for about two years now”, Bill Arnold, professor in the practice of energy management at Rice University’s Jones Graduate School of Business, said.

The dispute over which country cuts by how much appeared unresolved Tuesday evening with United Arab Emirates’ oil minister Suhail Mohamed Al Mazrouei saying that “the biggest barrier is that some are not participating”.

Saudi Arabia, the oil cartel’s biggest producer, is key to any deal.

OPEC sources told Reuters a meeting of experts in Vienna on Monday failed to bridge differences between Saudi Arabia, and the group’s second and third largest producers over the mechanics of output cuts. The Saudi government ran a deficit of almost $100 billion past year. Prices have since recovered to cross $50. The move aims to buck up oil prices that have more than halved since 2014. The U.S.is on track to be energy independent by 2020 in a best case scenario.

This was partly because they wanted other Opec producers to take more of the burden of cutting, it is thought – and partly to hurt the American industry. With demand being unable to keep up with supply, crude oil prices took a dive.

The stakes are very high.

“Our best case scenario is that there would be a deal. You remove a lot of oil from the market and you get the Russian participation”, said veteran OPEC watcher and founder of Pira consultancy Gary Ross.

Disagreements between Iran and its regional rival, Saudi Arabia, had blocked earlier attempts to reach a deal.

“It is a response to Saudi telling Iran what to produce”, one of the sources said.

In a way, Trump “wins” if the nations agree to a deal because oil prices will rise. That will incentivize US shale oil producers to drill and pump more oil.

For sure, it is a make-or-break chance for Opec; not only to boost oil prices, but to strengthen its standing in global oil market. This follows an $850bn loss a year ago and $720bn in 2014 as crude prices plunged.