Oil prices eased yesterday, weighed down by uncertainty over the outcome of an OPEC meeting this week at which an extension to its price-supporting oil output cuts will be discussed.
Prices also briefly came under pressure after a fire at Exxon Mobil Corp’s 362,300 barrel-per-day (bpd) Beaumont, Texas, refinery. Firefighters have since put out the blaze, but the small crude unit is shut, sources said.
Brent crude oil fell 44 cents, or 0.7 per cent, to $63.40 a barrel by 11:47am ET (1647 GMT). US crude was 32 cents, or 0.5 per cent, lower at $57.79 after falling 1.4 per cent in the previous session.
The Organization of the Petroleum Exporting Countries is hea-ding for tougher-than-expected policy talks tomorrow as its leader, Saudi Arabia, pushes to extend output cuts by nine months while non-member Russia is hesitating on the curbs’ duration due to worries that the market could overheat.
Oil output from Russia’s Far Eastern Sakhalin-1 project is set to rise by about a quarter from January, sources told Reuters, signalling Moscow may find it hard to comply with output cuts in tandem with OPEC for the whole of next year.
A joint OPEC and non-OPEC technical committee recommended extending the deal until the end of next year, with an option to review the deal in June.
“We believe that the outcome of this meeting is much more uncertain than usual,” Goldman Sachs analysts said.
“We view risks to oil prices as skewed to the downside this week, as we believe that current prices, time spreads and positioning already reflect a high probability of a nine-month extension,” the Goldman analysts said.
The market had expected OPEC to extend the cuts of 1.8 million bpd beyond March by another six to nine months, but this is now less certain.
Citigroup’s head of commodity research expects OPEC to extend the deal until the middle of next year, rather than the end.
But anything less than an extension until the end of next year will cause a sell-off in prices, Citi’s Ed Morse added.
Standard Chartered echoed that sentiment, saying anything beyond a plain vanilla rollover is likely to confuse the oil market.
“We think that the oil market has already almost fully priced in an extension of the OPEC and non-OPEC output deal to the end of 2018. We think OPEC should err in the direction of over-tightening the oil market, and pull back later if needed.”
Consultancy Wood Mackenzie projected that if the production cut agreement ends in March 2018, there will be around a 2.4 million bpd year-on-year increase in world oil supply for 2018.
US crude touched $59.05 on Friday, fuelled by the outage of the Keystone pipeline, one of the Canada-US main crude export routes. But TransCanada Corp this week said it would restart the pipeline at reduced pressure.
Analysts polled ahead of an inventory report from industry group American Petroleum Institute (API), due later yesterday, estimated, on average, that crude stocks had likely fallen 3.2 million barrels as of November 24.