OPEC Deal on Output Could Leave Markets Cold

On the New York Mercantile Exchange, light, sweet crude futures for delivery in January reversed an earlier loss to trade at $48.16 a barrel, up 16 cents, or 0.3%. January Brent crude in London plunged 28 cents, or 0.6%, to $48.84 a barrel.

Oil prices fell slightly on Wednesday (Nov 23) amid investor doubts that OPEC will agree to a production cut large enough to make a significant dent in the global glut of crude as U.S. drilling rises.

However, as Commerzbank noted, the market is likely to remain oversupplied for some time yet even after the OPEC meeting, especially since United States oil production will soon start rising again.

“An OPEC deal is not priced in to the market yet even if the confidence in a deal seems quite high”, said Bjarne Schieldrop, chief commodities analyst at SEB AB bank in Oslo.

“A preliminary meeting ahead of next week’s OPEC gathering failed to resolve the issues around Iran and Iraq’s involvement in the production cut agreement”, it said.

If the curb is agreed to, OPEC’s current output would decline by more than 1.2 million barrels per day (MMBPD) based on the group’s October production data – capping production closer to the upper end of its cutback proposal, at 33 MMBPD. “The sound bites of different oil ministers have not been enough to build confidence in OPEC and the market has turned into full wait-and-see mode”.

Traders expect that OPEC may reach an agreement to cut production, although the reduction would not be sufficient to eliminate global surplus, reported the news agency. OPEC has struggled to agree on a joint production freeze or cut to support oil prices before its November 30 meeting in Vienna.

According to analysts, the output deal still hinges on participation from Iran, which had previously vowed to continue raising production and exports until they return to pre-sanctions levels.

Saudi Arabia, OPEC’s largest producer, has expressed optimism that consensus can be reached to cut supply, though oil prices have been volatile amid speculation that exemptions granted to key countries could thwart a deal.

In a research note released Wednesday, analysts at the investment bank highlighted how various domestic energy companies’ financial positions could rise or fall depending on whether OPEC reaches a decision November 30 to cut production.

The results of Tuesday’s talks will be presented to ministers next week, Libya’s OPEC Governor Mohamed Oun said, declining to comment on whether Iran and Iraq are willing to limit output. The group’s own estimates show production at 33.6 million barrels a day last month.

Russian Federation has said it wants to help rebalance the market but prefers to freeze its output, which is around a post-Soviet high of more than 11 million bpd, rather than cut it.