Oil Falls for First Time in Three Days in Run-Up to OPEC

Brent and West Texas Intermediate declined for the first time in three days as investors weighed the odds of a production cut from OPEC this week.

Hedge funds have turned less bullish on oil in the absence of any clear signal from the Organization of Petroleum Exporting Countries that it will act to bolster prices. The 20 analysts surveyed last week by Bloomberg were divided, with half predicting a cut and the rest no action. Saudi Arabia’s Oil Minister Ali Al-Naimi said today it’s not the first time the oil market has been over-supplied.

“Whether they are going to cut is up in the air,” said Paul Crovo, a Philadelphia-based oil analyst at PNC Capital Advisors. “I won’t make big bets either way. There is a lot of expectation that OPEC does need to cut. That’s the perception, and it’s going to drive the market.”

Brent for January settlement slid 68 cents, or 0.8 percent, to end at $79.68 a barrel on the London-based ICE Futures Europe exchange. Futures closed at $80.36 on Nov. 21, the highest since Nov. 12. The volume of all futures was 45 percent below the 100-day average.

WTI for January delivery fell 73 cents, or 1 percent, to $75.78 barrel on the New York Mercantile Exchange. Volume was about 44 percent below the 100-day average. The European benchmark crude traded at a premium of $3.90 to WTI.

Nuclear Talks

Envoys representing Iran and a group of world powers today agreed to extend talks on the Islamic Republic’s nuclear program until July after failing to overcome differences at negotiations in Vienna.

International sanctions imposed on Iran over its nuclear program are choking the Persian Gulf nation’s crude shipments. The government in Tehran has been in talks with the U.S. and five other world powers for an agreement to lift the curbs.

“They are extending the talks and it’s a bit supportive for oil,” said Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut. “The market is not going to make big moves before the OPEC meeting. I don’t think there will be a meaningful cut from OPEC.”

OPEC, supplier of about 40 percent of the world’s oil, will meet Nov. 27 in Vienna to assess its collective output amid a supply glut and the drop in oil prices.

The group produced 30.97 million barrels a day in October, exceeding its target for a fifth month, according to data compiled by Bloomberg.

Iran Proposal

“This is not the first time the market is oversupplied,” Al-Naimi said in Vienna today, adding that he doesn’t expect a difficult meeting.

Iranian Oil Minister Bijan Namdar Zanganeh may propose an OPEC cut of as much as 1 million barrels a day when he meets Saudi Arabia’s Ali Al-Naimi before the group gathers, Mehr News reported. An official at Iran’s oil ministry didn’t immediately comment on the report when contacted by phone. OPEC will focus on supply and demand at the meeting, Suhail Al Mazrouei, the energy minister of the United Arab Emirates, said in comments on Twitter.

Russia’s government is considering joining OPEC production cuts next year to boost oil prices, Kommersant reported. The country may agree to reduce output by 15 million tons, or about 300,000 barrels a day, in return for 70 million tons of OPEC reductions, the Moscow-based newspaper reported said, citing people close to the government that it didn’t identify.

Long Gone

The days are long gone when OPEC could almost guarantee consensus when deciding output levels, according to Abdullah Bin Hamad Al Attiyah, the former Qatari oil minister who participated in the group’s policy meetings from 1992 to 2011. There’s an oversupply of about 2 million barrels a day, while global economic growth is below expectations, he said in a phone interview on Nov. 19.

Hedge funds turned less bullish on WTI, reducing net-long positions by 4.1 percent in the week ended Nov. 18, U.S. Commodity Futures Trading Commission data show. Outstanding futures contracts fell to the lowest level in more than two years.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE