New York: Oil dropped the most in more than two months on doubts Opec will come to an accord to cut output as planned talks between producers inside and outside the group was cancelled.
Futures fell 4.3 per cent in New York. Saudi Arabia on Friday pulled out of talks with non-Opec producers including Russia scheduled for Monday as disagreements about how to share the burden of supply cuts stood in the way of a deal. The meeting was later abandoned entirely after the Saudi decision. Opec ministers gather November 30 in Vienna. Algeria’s Energy Minister Noureddine Boutarfa travelled to Tehran on Saturday in an effort to bring a deal closer, said a person familiar with the matter.
The Organisation of Petroleum Exporting Countries continues to make diplomatic efforts to get everyone on board with plans to cut production and drag the market out of a 2 1/2-year downturn. While Saudi Arabia is pushing for a reduction, Iran is insisting it should be allowed to keep increasing. Russia’s offer to freeze supply at record levels instead of cutting is also frustrating some members. Opec members Libya and Nigeria are exempt from cuts and raising output.
“The charade is coming to an end,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “They had to cancel the Monday meeting to avoid the embarrassment of it ending in failure. The market richly rewarded Opec for rhetoric and now is poised to punish it harshly if they fail to come to an agreement.”
West Texas Intermediate for January delivery dropped $1.90 to $46.06 a barrel on the New York Mercantile Exchange. It’s the biggest decline since September 23. There was no settlement Thursday because of the Thanksgiving holiday, so all transactions were booked Friday. Total volume traded was about 21 per cent below the 100-day average.
Brent for January settlement decreased $1.76, or 3.6 per cent, to $47.24 a barrel on the London-based ICE Futures Europe exchange at 1:40am in New York. The global benchmark traded at a $1.18 premium to WTI.
“The market’s sceptical about Opec’s ability to come to an agreement,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “There are only a couple of days to go before the meeting and prices aren’t going the way Opec members would like. I still expect they will come up with a lame agreement, which does little, but they might not even be able to do that.”
Instead of meeting with non-Opec producers, the group called another internal meeting to try to resolve its own differences, particularly the question of whether Iran and Iraq are willing to cut production, said two delegates, asking not to be identified because the deliberations are sensitive. Saudi Arabia wants an Opec deal in place before conversations with other producers such as Russia, one delegate said.
“It’s not surprising that the Saudis would want an internal agreement before meeting with other producers,” said Tim Pickering, founder and chief investment officer of Auspice Capital Advisors Ltd. in Calgary. “They have to herd the cats within the cartel first.”
Opec has asked non-Opec countries to curb output by 500,000 barrels a day, Russian Energy Minister Alexander Novak told reporters in Moscow on Thursday. Russia reiterated its readiness to freeze oil production at current levels, arguing that the offer amounted to a cut compared with next year’s plans.
Ministers from Saudi Arabia and Iran won’t arrive in Vienna until November 29, said Opec delegates, leaving little time for them to hold negotiations before the big meeting.
“If they don’t come up with an agreement Wednesday we will soon be testing $40 again,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “We’re seeing some brinkmanship by the Saudis. The Saudis are the most important producer but the Russians are a close second, especially with their recent output increases.”
Algerian Energy Minister Boutarfa will also meet his Iraqi counterpart in Vienna on Monday, state-run Algerian Press Service reported. Opec’s ninth-largest producer played a central role in September to clinch the preliminary agreement to cut output to 32.5 million to 33 million barrels a day, compared with the group’s estimated October output of 33.6 million.