Iran rules out production cut ahead of OPEC meeting
NEW YORK (Bloomberg) -- Oil retreated below $46/bbl in New York after OPEC officials failed to work out a compromise deal to ease a global supply glut and Iran ruled out reducing its production.
Futures lost as much as 4.3% after Iranian Oil Minister Bijan Namdar Zanganeh told reporters in Vienna his country won’t cut output. A 10-hour technical meeting focusing on how to share the burden of cuts failed to resolve differences, with Iran still aiming to produce roughly 7% more than a level proposed by Saudi Arabia. Prices on Monday rallied 2.2% after Iraq’s oil minister said he was optimistic a deal would be reached. Goldman Sachs Group said the market is pricing in a 30% chance of a deal.
While an OPEC deal could push prices up about $5/bbl, according to Morgan Stanley, a failure could drive it down into the $20s, said Amrita Sen, chief oil analyst at Energy Aspects Ltd. Saudi Arabia’s Energy Minister Khalid Al-Falih, who has led a push by the Organization of Petroleum Exporting Countries to cut production for the first time in eight years, changed his tone on Sunday, saying producers don’t necessarily need to curb output.
“There is some disappointment that no deal has been reached so far,” Giovanni Staunovo, an analyst at UBS Group AG in Zurich, said by email. “The issues regarding Iran and Iraq remain almost the same as a few weeks ago.” West Texas Intermediate for January delivery lost as much as $2.03 to $45.05/bbl on New York Mercantile Exchange and was at $45.29 at 2:02 p.m. in London. Prices Monday rose $1.02 to $47.08/bbl.
10-Hour Meeting
Brent for January settlement, which expires Wednesday, lost as much as $2.10 to $46.14/bbl on the London-based ICE Futures Europe exchange. The contract advanced 2.1% to $48.24/bbl Monday. The global benchmark traded at a $1.13 premium to WTI for the same month. The more-active February futures were down $1.85 to $47.36/bbl.
The options market is also looking increasingly bearish. The so-called put-call skew—a measure of the difference in demand for options used to protect against price drops compared with those that insure the buyer against increases—closed on Monday with the most bearish reading in five months for Brent.
Brent may swing $6/bbl on Wednesday, based on implied volatility for options contracts, Goldman analysts including Jeff Currie said in a report.
A pact proposed Monday would trim output by 1.2 MMbopd from October levels, though it remains unclear whether the idea has the support needed for approval, a delegate said. Iran, OPEC’s third-biggest producer, proposed that it freeze production at 3.975 MMbopd, according to two delegates with knowledge of the talks. That is 7.2% higher than Saudi Arabia’s counter-proposal of 3.707 million barrels a day.
As OPEC tries to resolve its own differences, the group is also asking other big producers including Russia to reduce output by as much as 600,000 bopd. Russian resistance to reducing supply was a factor that forced the cancellation of planned discussions on Monday with non-OPEC suppliers.
