Oil Prices Drop as Output Hopes Dampen

Oil prices fell Friday as OPEC’s key producers cast doubt on the need to cut output, denting hopes of a deal to tackle a global supply glut.

Iranian Oil Minister Bijan Zanganeh on Friday said his country wanted its pre-sanctions share of the crude market.

His comments followed a warning by Saudi Energy Minister Khalid Al-Falih regarding the success of a gathering in Algeria next month on world output levels.

Around 1230 GMT, US benchmark West Texas Intermediate for delivery in October was down 18 cents at $47.15 a barrel.

“Comments from the Saudi energy minister quelled expectations of a production freeze, which rekindled concerns over the ongoing oversupply,” said Lukman Otunuga, research analyst at trading group FXTM.

Oil prices had rallied last week and entered a bull market — a 20-percent rise from recent lows — after OPEC and Russia announced plans to discuss the supply crisis, which has hammered the crude market for more than two years.

But prices have taken a beating this week on concerns about prospects for success at the September meeting in Algiers.

In an interview with Bloomberg News, Falih said: “I don’t believe that an intervention of significance is required. I certainly don’t advocate a cut.”

But he added that a “freeze (in output around current levels) signifies that everybody is content with where the market is today and they want it to be trending in that direction”.

A previous OPEC attempt to steady output collapsed in April largely because of Iran’s refusal to join talks, having just emerged from international sanctions and keen to maximise its oil revenues.

However, even if a deal is reached next month on the sidelines of an energy conference, there are doubts about the impact a production cap may have on an already oversupplied market.

“Most of the OPEC countries are sending a signal that they’re open to freezing production, but you have to remember that most of them are producing at peak levels,” BMI Research oil and gas analyst Peter Lee told AFP.

“Even if producers come to an agreement, the freeze is at a very high level.”

Lee added that he is “personally quite sceptical” about whether producers can come to an agreement in Algiers.

“It’s not just the matter of a production freeze or a cap, but there are geopolitical concerns involved too, especially when it comes to Iran and Saudi Arabia,” he said.