Oil markets recorded heavy falls on Tuesday as a long-mooted supply cut by Opec looks increasingly unlikely.
The price of West Texas Intermediate (WTI), the North American benchmark, fell as low as $45.63 per barrel at the time of writing – more than 2.8 per cent in the day. Meanwhile Brent crude, the North Sea benchmark, had fallen by similar amounts, recording a low of $46.79 per barrel.
Iran and Iraq are holding out against conditions desired by Saudi Arabia’s representatives, according to reports by Reuters. News that Russia, not an Opec member, will probably not attend the meeting have further dented hopes.
Markets are reacting to reports that production cut, provisionally agreed at a meeting in Algeria in September, may be under severe threat. Opec had announced a limit of between 32.5m and 33.0m barrels per day, to be confirmed at tomorrow’s meeting.
WTI prices rose steadily to above $48 per barrel until 22 November as momentum gathered behind predictions that the cut would be agreed. Since then, however, political obstacles have become clearer.
Opec (the Organisation of the Petroleum Exporting Countries) has not cut production since 2008 when oil demand plummeted. The cartel cuts production to attempt to raise oil prices for the benefit of its members.
However, recent efforts to cut production have stalled as members battle to preserve their market share.
Iran’s national oil minister Bijan Zanganeh was quoted yesterday by Shana, an Iranian news agency, as saying: “Revival of Iran’s lost share in the oil market is the national will and demand of Iranian people.”
“Considering the fact that OPEC does not have the authority to impose a production freeze or reduction, and with varying factions requesting exemptions, the odds of an output cut agreement being reached and implemented look unlikely,” said Mihir Kapadia, chief executive of Sun Global Investments.