Oil halts rally over output concerns
OIL prices eased in Asia trade yesterday but held above US$45 a barrel as the market weighed the possibility of major producers reaching an agreement to freeze output during a meeting next month.
Members of the Organisation of Petroleum Exporting Countries (OPEC) as well as non-members are scheduled to meet informally in Algeria in September, and Saudi Arabia’s oil minister Khalid al-Falih has hinted that discussions could include actions to stabilise prices.
His remarks last week sparked a price rally as they were widely seen as a suggestion that OPEC could revive talks on trimming high output levels.
Prices continued their rise overnight after Russian Energy Minister Alexander Novak said his country was working with Saudi Arabia to achieve oil market stability – hinting at a possible production freeze in cooperation with OPEC.
In New York, US crude jumped $1.25 to close at $45.74, but halted its incline in Asian trade.
Analysts said there were doubts an accord would be reached.
“Some doubt about a possible deal to freeze output could have set in,” IG Markets Singapore analyst Bernard Aw told AFP.
Mr Aw said a previous attempt to freeze output at January 2016 levels failed in April after Saudi Arabia said it wanted all producers, including Iran, to be part of the agreement.
Iran had refused, saying it needed to regain market share lost during years of Western economic sanctions over its nuclear ambitions.
“Investors are wondering: If Iran doesn’t participate in any such discussions, would Saudi Arabia still be amenable?” Mr Aw said.
“The chances of a deal actually occurring at next month’s OPEC meeting are minimal,” Angus Nicholson, a strategist at IG Markets, said in an email commentary.
“The Saudis are happy to commit to some sort of OPEC-wide supply freeze deal so long as Iran is party to it. And Iran refuses to agree to any deal that will inhibit them from lifting output to pre-sanctions levels.”
Saudi Arabia, the biggest exporter in the OPEC producers’ group, in May also replaced its veteran oil minister Ali al-Naimi with Khalid al-Falih, who is thought to be, if anything, less amenable to a production cut.
“Since Al-Naimi’s removal, the tone toward working with Saudi Arabia’s main regional rival, Iran, has dramatically hardened making a deal even less likely,” Mr Nicholson added.
Oil prices had entered a “bear” market at the start of the month on oversupply concerns, falling more than 20 percent and closing below $40 for the first time since April.
Any agreement to curb production would help rebalance the crude oil market, where output has been running ahead of demand. –