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MW: Oil prices slide more than 1% after Iran, Saudis douse hopes for production deal
 
Crude oil prices dropped sharply on Tuesday after both Iran and Saudi Arabia played down expectations for a deal to freeze or cut oil production at the closely watched informal OPEC meeting on Wednesday.

Both countries said the meeting between members of the Organization of the Petroleum Exporting Countries and other heavyweight producers such as Russia, is only “consultative,” reinforcing views that major oil nations will walk away from the negotiations without a pact.

Light, sweet crude futures for delivery in November CLX6, -1.79% fell 57 cents, or 1.2%, to $45.37 a barrel on the New York Mercantile Exchange. November Brent crude LCOX6, -1.92% traded on London’s ICE Futures Europe fell 62 cents, or 1.3%, to $46.73 a barrel.

“Any hopes for a crude output freeze being agreed [to] in Algiers this week have been dashed today after Saudi Arabia joined Iran in saying any talks on curbing output will be consultative,” said Neil Wilson, markets analyst at ETX Capital.


“We can now expect some more jawboning until OPEC meets properly in November, but it does seem like there is progress being made and a freeze could yet be agreed by year end,” he added.

Arriving at the three-day oil conference in Algiers on Monday, Iranian officials reiterated their vow to pump output higher, playing down expectations the country will agree to any production agreement.

Saudi Arabia Energy Minister Khalid al-Falih reiterated Iran’s comments, stressing the meeting’s purpose as “consultative” only. Sources within OPEC said the differences between cartel kingpin Saudi Arabia and rival Iran remain too wide, according to Reuters.

Since mid-2014, oil prices have grappled with the persistent issue of oversupply as big OPEC players such as Saudi Arabia have taken a “market-share first” strategy to defend their turf against the U.S. shale boom. The lower margins, on account of the lower oil prices, have led several oil producers to drop out or scale back their investments.

In 2015, global investments in oil and gas fields fell by 25%, and are set to slide by a further 24% this year, according to Paris-based energy watchdog International Energy Agency.

Analysts say the longstanding political rivalry between Saudi Arabia and Iran remains a core hindrance to any potential deal at Algeria.

“There is really no hope of any agreement when Iran and Saudi Arabia don’t agree,” said Alan Oster, chief economist at National Australia Bank.

Saudi Arabia has stated it would support a production freeze, only if all players are committed to the plan and if Iran caps its future production at its current daily output of 3.6 million barrels, according to people familiar with the kingdom’s proposal. However, Iran has reiterated its goal to keep pumping until output hits the presanction levels of 4.2 million barrels a day.

Even if a deal were reached, oversupply in global oil markets would persist as countries like Nigeria and Venezuela are aggressively ramping up production to make up for losses they suffered in recent months due to internal strife.

“Freezing output at current levels would do little to balance the market given that the majority of OPEC members are producing at or around their peak capacity,” said BMI Research, in a note.

Stronger-than-expected resilience by U.S. shale producers is adding to the bearishness. Although Nymex prices have failed to break above $50 a barrel since the end of June, U.S. oil drillers have been steadily returning to the oil patches. In the week ended September 16, the total active oil rigs in the U.S. rose to 418, based on data provided by industry group Baker Hughes.

Investors will be monitoring the weekly U.S. crude stock report due Wednesday for cues. A survey by S&P Global Platts showed U.S. crude inventories rose 3.2 million barrels last week while gasoline stocks remained unchanged.

Nymex reformulated gasoline blendstock for October RBZ6, -1.80% — the benchmark gasoline contract — fell 2 cents to $1.37 a gallon, while ICE gasoil for October changed hands at $419.50 a metric ton, down $6.25 from Monday’s settlement.

Source