Oil Gyrates Ahead of OPEC meeting

Oil prices edged higher on Monday, after falling as much as 2% in early trading, as the market grappled with the shaky prospect of major producers being able to agree output cuts at a meeting on Wednesday aimed at reining in global oversupply.

Brent crude futures fell as far as 2% before clawing back to trade 29c higher at $47.44 a barrel at 10.08am GMT.

US West Texas Intermediate (WTI) crude futures also recouped early losses and was trading up 15c at $46.21 a barrel.

The choppy trading came after prices tumbled more than 3% on Friday as doubts grew over whether oil cartel Opec would reach agreement to help curb global supply overhang that has more than halved prices since 2014.

On Sunday, Saudi Arabian Energy Minister Khalid al-Falih said that he believed the oil market would balance itself in 2017 even if producers did not intervene, and that keeping output at current levels could therefore be justified.

The statement added to simmering disagreement between Opec and non-Opec crude exporters such as Russia over who should cut production and by how much.

Analysts said that even if some form of an output restriction was announced after producers met in Vienna on Wednesday, the details mattered greatly.

"Do not take an announcement of a headline cut of 1-million barrels a day at face value. It could still imply an Opec production level considerably in excess of 33-million barrels a day, depending on developments in Libya and Nigeria and the speed and rigour of compliance," PVM Oil Associates MD David Hufton said in a note.

He added that the stakes of failure were high for producer nations dependent on oil export revenue.

"But one thing few, if any, analysts will disagree with is that if Opec does not come up with a credible agreement to cut production on Wednesday oil prices will end the year below $40 a barrel and be chasing down $30 a barrel early next year," Hufton said.

A meeting scheduled for Monday between Opec and non-Opec producers was called off after Saudi Arabia declined to attend, while concerns over the feasibility of a deal pushed the crude oil volatility index close to a nine-month high.

Even if a cut is agreed, oversupply may not end soon.

The US oil rig count rose by three last week, and Goldman Sachs said that "since its trough on May 27 2016, producers have added 158 oil rigs (+50%) in the US".

Reuters