Crude futures rebounded on Wednesday, though sentiment remains bearish that the Organization of the Petroleum Exporting Countries will deliver an agreement later today on production cuts.
An OPEC deal would be aimed at cutting into a global oversupply of oil that has severely depressed prices since 2014. A proposal would have the group cut production by more than a million barrels a day, which represents about 1% of the global oil supply.
Goldman Sachs says if OPEC reaches an accord on production, prices could rise to the low-$ 50-a-barrel range. If no deal is reached, oil prices could plunge below $ 40 a barrel.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in January recently traded at $ 45.51 a barrel, up $ 0.28 in the Globex electronic session. January Brent crude on London’s ICE Futures exchange rose $ 0.44 to $ 46.82 a barrel.
In the past year, OPEC leaders have tried several times to agree on production curbs, but these attempts have failed. In April, de facto OPEC leader Saudi Arabia refused take part in a deal after it insisted that all members agree on production cuts, which didn’t happen. The kingdom is likely to make the same demand this time around.
Tension between Iran and Saudi Arabia has been a sticking point leading up to today’s summit in Vienna. Even though Iran has relaxed its position by agreeing to hold production levels steady–a step back from a previous demand to keep pumping–it remains to be seen whether Saudi Arabia will be satisfied.
“The fact that geopolitical rivals, Saudi Arabia and Iran, appear to have problems resolving their differences on the allocation of any cartel-wide production cuts seems to be the major stumbling block to any agreement,” said Barnabas Gan, an economist at OCBC bank in Singapore.
Iraq, OPEC’s second largest producer after Saudi Arabia, also wants to be excluded from a deal, saying it would only go as far as capping production at present levels. Iraq says it needs the oil revenue to fund its war against Islamic State.
The Iraqi and Iranian proposals are being circulated in a briefing paper among OPEC members ahead of the meeting, The Wall Street Journal reported.
“This apparent stalemate has seen investors take an increasingly bearish view on oil prices,” said ANZ Research. ANZ added that despite the squabbling, OPEC is under growing pressure to deliver a deal to protect its relevance.
Saudi Arabia has much more to lose if oil prices remain low and the kingdom’s finances have been strained by the glut.
“In order for the deal to happen, Saudi Arabia must be the one to make most of the concessions,” said Vyanne Lai, an energy analyst at National Australia Bank.
Nymex reformulated gasoline blendstock for December RBZ6, +0.12% — the benchmark gasoline contract — rose 17 points to $ 1.3788 a gallon, while December diesel traded at $ 0.0000, 27 points lower.
ICE gasoil for December changed hands at $ 425.00 a metric ton, down $ 0.50 from Tuesday’s settlement.