Dubai: Amid slim hopes of an oil output deal in Algiers this week, oil prices may witness a limited upside from here on.

In preparatory talks in Vienna, Saudi Arabia and Iran did not reach an agreement, according to media reports, including Saudi’s call to cut production return of an output freeze by Iran. All the Opec and non-Opec countries had called to stabilise the oil market, which is still battling with a surplus of 1.6 million barrels of oil per day.

“I am sceptical about the capacity of Opec members to work out a deal in this week’s meeting,” Francisco Quintana, Head of Strategy, Foresight Advisors told Gulf News over email.

Opec (Organisation of Petroleum Exporting Countries) and non-Opec officials will meet on Monday to Wednesday in Algiers, after a failed attempt in April this year in Doha, Qatar, to strike a deal following differences between Saudi Arabia and Iran — which was trying to take back the lost market share.

Analysts are also not expecting much on the price front. “We maintain the view that the upside remains limited until we see clear signs of the glut being reduced,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Rising supplies

Oil prices, which hovered over $100 (Dh367) per barrel between 2011 and 2014, have fallen by more than half to be at around $50 due to rising supplies. On Friday, Brent crude tumbled 3.69 per cent to be at $45.89. Failure to act would return the focus to jump in production which carries the risk of seeing Brent crude trade below recent support at $45, potentially targeting $40, according to Hansen.

Aberdeen Asset Management, too, expects prices to tumble — to $30 — in case of no deal.

“Narrow interests often trumps rationality at Opec, so a deal could well not happen. If nothing gets done then we could see prices go down to $30,” said Robert Minter, Investment Strategist at Aberdeen Asset Management.

US output

The elephant in the room is the US production.

Higher oil prices would also make shale production more attractive, which has been evident in the data issued by energy services firm Baker Huges Inc.

US drillers last week added oil rigs for a 12th week in the past 13 weeks and were on track to add the most rigs in a quarter since crude prices plummeted two years ago.

Drillers added two oil rigs in the week to September 23, bringing the total rig count up to 418, the most since February but still below the 641 rigs seen a year ago, according to Baker Hughes.

Factbox: Algeria sees oil market in ‘critical’ shape ahead of Opec talks

The oil market is in “much more critical” shape than when Opec last met and its members must seek ways to stabilise crude prices, possibly by freezing or cutting output, Algeria’s energy minister said ahead of talks among the group’s members this week in Algiers.

Saudi Arabia, the biggest producer in the Organisation of Petroleum Exporting Countries (Opec), is willing to do its utmost to ensure the discussions succeed and is open to capping or reducing its production, the Algerian minister, Noureddine Boutarfa, said Sunday in an interview in Algiers. Fellow Opec member Algeria wants the group to cut its collective output by 1 million barrels a day, he said.

“The situation since the last meeting in June has worsened, the situation is much more critical,” Boutarfa said. “So it’s important to see what measures can be adopted in the short term and very short term to find a solution to this situation that isn’t helping any Opec country.”

— Bloomberg