Oil prices extend losses as Iran appears to resist output limits

Oil prices fell as much as 4 percent on Tuesday after Iran’s oil minister said the country was prepared to leave its oil production at levels to which OPEC had agreed at its September meeting in Algeria.

“We will leave the level of production we decided on in Algeria,” Bijan Zanganeh told reporters when asked whether Iran would cut output in tandem with other members of the Organization of the Petroleum Exporting Countries.

OPEC, which accounts for a third of global oil production, agreed in September to cap output at around 32.5-33.0 million barrels per day versus the current 33.64 million bpd to prop up oil prices, which have halved since mid-2014.

OPEC said it would exempt Iran, Libya and Nigeria from cuts as their output has been crimped by unrest and sanctions.

The deal was seen as a victory for Iran. Tehran has long argued it wants to raise production to regain market share lost under Western sanctions, when its political arch-rival Saudi Arabia increased output.

Brent crude oil was down $1.84, or 3.8 percent, a barrel at $46.40 by 9:55 a.m. ET (1455 GMT). U.S. light crude oil was down $1.80, or 3.8 percent, at $45.28 a barrel.

OPEC will meet in Vienna on Wednesday and aims to implement an agreement outlined in September to cut output by around 1 million barrels per day (bpd), from around 33.82 million bpd in October.
But key OPEC members appear to disagree over details of the agreement and some analysts have suggested the meeting may fail to reach a deal or to produce one that is unworkable. Iran and Iraq are resisting pressure from Saudi Arabia to curtail oil production.

“We now see a very low chance for an OPEC cut,” said Bjarne Schieldrop, chief commodities analyst at Nordic bank SEB.

Indonesian Energy Minister Ignasius Jonan said he was not sure OPEC would clinch a deal to limit oil output when it met.

“I don’t know. Let’s see. The feeling today is mixed,” he told reporters when asked about the prospects of a deal.

Non-OPEC producer Russia confirmed on Tuesday it would not attend the OPEC gathering, but added that a meeting between the group and non-affiliated producers at a later stage was possible.

“Volatility is set to be high in the oil market in the days ahead,” analysts at Barclays said.

Intense negotiations would be needed on Wednesday to cement a deal, Goldman Sachs analysts said.

“The latest headlines suggest that while there is a broad agreement on the rationale for a cut, political considerations and country level quota negotiations are so far preventing a deal from being reached,” Goldman Sachs said.

There remains disagreement among OPEC members over which producers should cut by how much.

If OPEC agreed a production cut to 32.5 million bpd, crude prices would likely rise to the low $50s a barrel, Goldman said.

“If no deal is reached, our expectation of rising (crude) inventories through 1H 2017 would warrant prices averaging $45 per barrel through next summer,” Goldman said, noting a move to below $40 per barrel would be difficult to sustain.

In Asia, OPEC’s biggest customer region, oil importers made clear that they would not be happy with an artificial supply cut that hikes prices, and that in case of a cut they would seek more supplies from outside OPEC.