Oil prices drop as investors hedge pending OPEC meeting outcomes
Oil futures dropped this week amid concerns around uncertain commitment from several major oil producers to output caps, ahead of a forthcoming meeting of OPEC and the publication of its official monthly report.
At the OPEC meeting in Abu Dhabi, members will discuss compliance level to the output pact that the cartel signed together with 10 other oil suppliers, including Russia, late last year. Thus far the deal has failed to produce any meaningful effects to reduce global output or inventories.
Oil Futures Prices Down
As a result of worries around compliance with the OPEC cuts, on the New York Mercantile Exchange, crude futures due to be delivered in September were down 1.3% to $49.94 a barrel. On London’s ICE Futures, October Brent crude was down 1.3% to $51.72 a barrel. The benchmark gasoline contract, Nymex reformulated gasoline blend-stock, also fell by 1.23% to $1.63 a gallon. In addition, ICE gasoil fell $7 from the previous settlement to change hands at just £481 per metric tonne.
The dip in prices is also partly blamed on the approaching end to the summer driving season when consumer demand for fuel and consequent low inventories will dip. Last week prices settled a little higher, following a solid US employment report and the Baker Hughes’ weekly rig count indicating a net decline and one inactive US drilling rig.
The market will be watching to see if Libya will join the cap output. Libya, together with Nigeria, was exempt from the initial OPEC deal following militant attacks on oil extraction operations that marred their output. However, both countries are now pumping closer to their maximum levels and there is a growing opinion that they should therefore also be required to fall-in with production caps. In fact, both African producers’ July output was 590,000 barrels over October’s, which equates to a baseline that participants in the deal use to determine their respective production caps.
Singapore OCBC economists report a mixture of hope and optimism that more compliance can be achieved among oil producing nations.