After the Organisation of Petroleum Exporting Countries (Opec) failed to reach an immediate agreement on output cuts in Vienna over the weekend, analysts expect oil prices may head southward.
On Friday, Brent crude fell 1.51 per cent to be at $49.71 per barrel, registering its biggest weekly loss in six weeks. West Texas Intermediate closed 2.05 per cent lower at $48.70 per barrel.
Oil prices had gained 13 per cent to their highest level in fifteen months on expectations of an output freeze before giving up gains.
“Due to the initial bad news coming in from Vienna, we are expecting more gap down in oil markets. Oil would continue to move down not only due to fundamental reasons but also technical,” Naeem Aslam, chief market analyst with Think Forex told Gulf News over phone from London.
Aslam expect prices to move down towards $47/44 in coming sessions.
Opec members themselves have not been able to agree how to implement a deal to limit output after hours of talks last week amid objections by Iran and Iraq which has been reluctant to even freeze its output levels, Reuters reported.
Non-Opec members have said they would join the freeze after Opec members agree among themselves. Opec wants to limit production ranging between 32.5-33.0 million barrels per day compared to 33.4 million in September, in order to accelerate the drawdown.
“We are hopeful be able to come out with a solution, but it is anyone’s guess. We haven’t had any concrete resolution so far after meetings after meetings,” Aslam said.
Vaqar Zuberi from Mirabaud Asset Management concurred.
“The absence of a preliminary accord this weekend at the Vienna meeting between Opec producers reaffirms our base case that oil prices will witness short term volatility driven by supply, demand and inventory data,” Zuberi, head of research, Portfolio Manager — Multi Manager Funds at Mirabaud Asset Management said.
“Given the budgetary pressures on oil producing nations, a renewed effort to reach an agreement before the next Opec meeting at the end of November should be expected, news of which will continue to drive oil prices over the next few weeks,” Zuberi said.
However, the number of rigs drilling for oil in the US eased after rising for 17 straight weeks.
The US oil rig count plunged from a record 1,609 in October 2014 to a six-year low of 316 in May after crude collapsed from over $107 a barrel in June 2014 to near $26 in February 2016 due to a global oil glut.