 "Oil falls as Iran and Saudis harden stance on output cuts")
Oil fell below $45 in New York as an Opec deal to curb output appeared in jeopardy after Iran and Saudi Arabia failed to bridge differences.
Futures tumbled as much as 4.8 per cent after Iranian Oil Minister Bijan Namdar Zanganeh told reporters in Vienna his nation won’t reduce production. A 10-hour technical meeting focusing on how to share the burden of cuts failed to resolve differences. Saudi Arabia is ready to reject an agreement unless all Opec members, excluding Libya and Nigeria, participate, said people familiar with the kingdom’s current position at the talks.
“This is going to go right down to the wire,” Mike Wittner, head of oil-market research at Societe Generale SA in New York, said by telephone. “The Saudis have been remarkably consistent in what they expect from the Iranians over the last two months.”
Goldman Sachs Group said the market is pricing in a 30 per cent chance of a deal. While an accord could push prices up about $5 a barrel, 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 the push for Opec to cut production for the first time in eight years, changed his tone on Sunday, saying a deal might not be needed.
West Texas Intermediate for January delivery dropped $1.76, or 3.7 per cent, to $45.32 a barrel at 11:31 am on the New York Mercantile Exchange. Futures touched $44.82, the lowest since November 18. Prices rose 2.2 per cent on Monday. Total volume traded was about 20 per cent above the 100-day average.
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Brent for January settlement, which expires Wednesday, fell $1.75, or 3.6 per cent, to $46.49 a barrel on the London-based ICE Futures Europe exchange. The global benchmark traded at a $1.17 premium to WTI for the same month. The more-active February futures slipped $1.78 to $47.43 a barrel.
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 gains — closed on Monday with the most bearish reading in five months for Brent. Brent may swing $6 a barrel on Wednesday, based on implied volatility for options contracts, Goldman analysts including Jeff Currie said in a report.
“Unless there’s a material concession from Iran there’s no way Saudi Arabia is going to agree to reduce production,” Stephen Schork, president of the Schork Group Inc., a consulting company in Villanova, Pennsylvania, said by telephone. “If prices jumped above $50, US barrels would come back to the market. They would also lose market share to the Iranians and Russians in the Far East.”
A pact proposed Monday would trim output by 1.2 million barrels a day 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 million barrels a day, according to two delegates with knowledge of the talks. That is 7.2 per cent higher than Saudi Arabia’s counter-proposal of 3.707 million barrels a day.
“The market’s been hit by a cocktail of negative developments,” Bob Yawger, director of the futures division at Mizuho Securities USA in New York, said by telephone. “It looks like only three countries, Saudi Arabia, Kuwait and the UAE, are willing to make real cuts, which isn’t acceptable to the Saudis.”
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 barrels a day. Russian resistance to reducing supply was a factor that forced the cancellation of planned discussions on Monday with non-Opec suppliers.