Oil Prices Fell as Optimism on Producer Action Fades
The price of oil has dipped to $47 range per barrel on Tuesday, weakening further from its previous session’s one-week high as optimism for near-term action to address the oil supply glut gradually faded.
Saudi Arabia and Russia, two of the world’s largest oil producer has reached an agreement on Monday to work together to bring back stability in the oil markets. The statement immediately supported the commodity, with Brent crude surging almost 5 percent. However, a recent statement by the Saudi Arabia’ Energy Minister Khalid al-Falih, which says there was no need to limit output for now, has quickly trimmed gains.
“The two nation’s cooperation is understandable,” said a strategist with Okato Shoji Co. Ltd.
“But when oil output is reduced, other producers would receive the benefit. There is still a question whether they can cut production for a sustainable period."
Brent crude scheduled for delivery in November decline 32 cents or 0.64% to trade at $47.31 per barrel by 0434 ET. US crude for October delivery, which did not settle on Monday due to a holiday in the U.S., moved 60 cents higher from its Friday close.
“I think yesterday’s lack of an agreement puts paid to any hopes that a production freeze is going to happen,” said an analyst at NBD Bank. “Everyone is just going to have to accept that oil is lodged in the $45-$50 a barrel bracket until the fundamental factors underpinning the market start to level off. It’s where we are right now.”
Current oil prices are half their level mid-2014, and it has been seriously detrimental to the income of the oil producers. The Organization of Petroleum Exporting Countries and Russia attempted to talk possible solutions to bring back stability in the oil markets and address the oil supply glut, but the deal collapsed in April after Saudi and Iran failed to reach an agreement on output freeze.
The OPEC members, led by Saudi Arabia and other large oil exporters in the Middle East, and non-OPEC oil producers such as Russia will hold an informal meeting in Algeria on September 26 and 28 to tackle possible solutions on the oil supply glut.
However, market experts said the likelihood that the upcoming OPEC talks in late September would yield any actions is very minimal.
NYMEX crude for October delivery moved 1.3% higher, up 57 cents to trade at $45.01 per barrel.
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