Oil slumps 4 percent as no output deal expected for OPEC
NEW YORK – Oil prices tumbled 4 percent on Friday on signs Saudi Arabia and arch rival Iran were making little progress in achieving preliminary agreement ahead of talks by major crude exporters next week aimed at freezing production.
Also weighing on sentiment was data showing the United States was on track to add the most number of oil rigs in a quarter since the crude price crash began two years ago. Lower equity prices on Wall Street and other world stock markets was another bearish factor.
Brent crude futures LCOc1 settled down $1.76, or 3.7 percent, at $45.89 a barrel. For the week, it rose 0.3 percent, accounting for gains in the past two sessions.
US West Texas Intermediate (WTI) crude futures CLc1 fell $1.84, or 4 percent, to settle at $44.48. On the week, WTI gained 3 percent.
Crude futures slumped after sources said Saudi Arabia did not expect a decision in Algeria where the Organization of the Petroleum Exporting Countries and other big oil producers were to convene for Sept 26-28 talks.
“The Algeria meeting is not a decision making meeting. It is for consultations,” a source familiar with Saudi oil officials’ thinking told Reuters.
Earlier in the day, the market rallied when Reuters reported that Saudi Arabia had offered to reduce production if Iran caps its own output this year.
Oil prices are typically volatile before OPEC talks and Friday’s session was tempered with caution despite market sentiment on a high this week after the US government reported on Wednesday a third straight weekly drop in crude stockpiles.
“A ‘No Deal’ result in our definition will be one where OPEC not only failed to get an explicit deal out of the meetings, but also failed to develop a forward plan,” Macquarie Capital said in a note, referring to the Algeria talks. “This would be another epic fail by OPEC.”
The Alegria talks are OPEC’s second attempt for an agreement on production curbs, after a failed effort in May. The market has been skeptical of OPEC’s commitment, though, as key members of the group, led by Saudi Arabia and Iran have been pumping at optimum levels to protect market share.
Non-OPEC member Russia, the world’s largest oil exporter, also hit record highs in production this week.
The production spike, rhetoric from OPEC and recent declines in US stocks have kept crude in a $40-$50 range after 12-year lows of around $26 set in the first quarter.
“Let us reiterate that we still don’t expect that a fundamentals driven rally will be strong enough to drive prices above $50 per barrel until Q1 or Q2 of next year,” Credit Suisse said in a note. “Equally, however, we don’t see a good fundamentals-based case for prices to collapse and set new cycle-lows all over again.” –Reuters