Oil Trades At $45.97/barrel As Hope for Output Freeze Wanes

Oil prices shed almost 3% on Tuesday, September 27, after both Iran and Saudi Arabia cut down expectations for a deal to freeze or cut crude production at the closely watched informal OPEC meeting on Wednesday, MarketWatch reports.

Both countries implied that the meeting between members of theOrganisation of the Petroleum Exporting Countries and other heavyweight producers such as Russia, will be “consultative,” reinforcing views that major oil nations will walk away from the negotiations without an agreement.

November West Texas Intermediate crude CLX6, +0.22% fell by $1.26, or 2.7%, to settle at $44.67 a barrel on the New York Mercantile Exchange, following a gain of 3.3% on Monday.

November Brent crude LCOX6, +0.54% traded on London’s ICE Futures Europe fell $1.38, or 2.9%, to $45.97 a barrel.

Arriving at the three-day oil conference in Algiers on Monday, Iranian officials reiterated their vow to pump output higher, undercutting expectations the country would agree to an output pact.

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.

“This is short-term bearish, eliminating optimism of an agreement at this meeting,” said James Williams, energy economist at WTRG Economics.

But by the time OPEC’s scheduled Nov. 30 meeting rolls around, Iran should be closer to its pre-sanction output level of 4 million barrels a day, said Williams. That’s the level Iran said it plans to reach before even considering a cap on production.

So “between now and November, we may be in for a sustained volatility and wild ride for prices,” Williams said.

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

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.

Oil prices failed to get a boost even after The Wall Street Journal, citing people familiar with the proposal, reported that OPEC would discuss cutting 350 million barrels of output over 1 year, equal to around 1 million barrels a day.