Non-OPEC Members Want More Oil Output
Oil prices came under pressure after it was reported that oil-producing nations failed to reach an agreement with non-OPEC production cuts.
West Texas Intermediate (WTI) crude oil tumbled about four percent on Monday in New York as oil markets took this development negatively. Oil futures traded at $46.86 per barrel, the lowest close since September 27.
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Bloomberg reported that the Organization of Petroleum Exporting Countries (OPEC) ended talks with non-members such as Russia and Brazil on Saturday without an agreement, citing Brazil’s Oil and Gas Secretary Marcio Felix. (Source: “Oil Tumbles to One-Month Low as OPEC Accord Remains Unresolved,” Bloomberg, October 30, 2016.)
OPEC members haven’t been able to resolve how to allocate among its members an output cut announced last month. Iraq has joined Iran, Nigeria, and Libya in seeking to be excluded from any cuts.
OPEC had agreed in the Algerian capital last month to cut production to a range of 32.5 million to 33 million barrels per day, and is scheduled to finalize the deal at a November 30 summit in Vienna, Austria.
After the tentative agreement, oil prices surged to a 15-month high above $50.00 per barrel earlier this month. After reaching this level, oil prices declined gradually amid doubts that the group members won’t be able to resolve their differences.
Oil prices have fallen from their peak reached in the summer of 2014 as supply glut depressed prices, forcing many OPEC countries to trim their spending as budget deficits soared in countries like Saudi Arabia and Russia.
Analysts have doubts that OPEC members will be able to balance the markets, given the political rivalries between the two largest producers: Saudi Arabia and Iran.
In the futures market, investors increased their bets that oil prices will decline further—for the first time in five weeks—amid the news of disagreement over production quotas.
In addition to increasing short positions in WTI crude oil in the week ended October 25, hedge funds reduced their long positions (wagers that prices will rise). The resulting net long position decreased eight percent, acording to Commodity Futures Trading Commission data. (Source: Ibid.)
