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Oil futures prices fell Friday, as traders adopted a wait-and-see stance ahead of next week’s crucial production meeting of the Organization of the Petroleum Exporting Countries, at which the cartel could strike a deal to cut output.
On the New York Mercantile Exchange, West Texas Intermediate crude futures CLF7, -0.13% finished down $2.02, or 4.2%, at $45.93 a barrel. Still, the contract managed a 0.5% weekly gain, putting up back-to-back weekly gains.
Brent crude LCOF7, -0.13% , the global oil benchmark, fell $1.92, or 3.9%, to $47.08 a barrel on London’s ICE Futures exchange.
Expectations for a sizable production cut from OPEC have been building, with Saudi Arabia backing an effort to cut output by over 1 million barrels to 32.5 million barrels a day, people familiar with the matter told The Wall Street Journal. OPEC agreed in principle in September to cap output at 32.5 million to 33 million barrels a day, but details with be hammered out on Nov.30.
A large number of short positions, or bets on lower oil prices, mean crude could rise sharply if OPEC delivers a cut, according to consultancy Energy Aspects.
“With managed money short positions across WTI and Brent at record highs, the market is setting itself up for a possibly sharp short covering rally — should OPEC deliver an output cut of around 1 million barrels a day,” they said in a note to clients.
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The Saudi-backed proposal is the most concrete plan so far, but Iran and Iraq have had misgivings. Iraq is in need of oil revenue to help fund its war with Islamic State, while Iran is trying to ramp up exports after years of international sanctions.
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Ole Hanson, head of commodity strategy at Saxo Bank, said that Saudi’s proposal implies they expect all producers, apart from Libya and Nigeria, to contribute.
“Therefore once again (they are) throwing the baton to Iran who has to, at a bare minimum, agree to a freeze and preferably also join in with the 4 to 4.5% cut to achieve that level,” he said.
Analysts at Commerzbank Securities tossed some doubt on broader agreement.
“Saudi Arabia could cut its production by approximately 500,000 barrels per day, which would merely mean reducing output to the normal winter level,” they wrote, in a note. “The remainder would have to come from other countries. However, apart from Saudi Arabia’s allied Gulf neighbors, no other country is currently showing any willingness to cut production.”
Nymex reformulated gasoline blendstock RBZ6, +0.13% — the benchmark gasoline contract — fell 3% to $1.38 a gallon. ICE gas oil changed hands at $440.50 a metric ton, down $3.50 from the previous settlement.
—Dan Strumpf contributed to this report.
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