Oil prices retreated today as a rally fuelled by reports Saudi Arabia and Russia had agreed to an output freeze petered out.
Prices shot to 2016 highs yesterday, as reports that two of the world’s biggest crude producers had reached a consensus boosted expectations that a wider deal could be struck at a key meeting in Doha on Sunday.
But the market faded today with traders booking profits as official data showed US crude inventories rose more than expected—and as OPEC warned about the consequences of a global supply glut that has massively depressed oil prices over the past couple of years.
Around 1600 GMT, US benchmark West Texas Intermediate (WTI) for delivery in May was down eight cents at USD 42.09 a barrel.
Brent North Sea crude for June delivery fell 21 cents to USD 44.48 a barrel compared with yesterday’s close.
WTI and Brent had jumped around two dollars to USD 42.25 and USD 44.81 yesterday—the highest levels this year.
Prices nevertheless remain far below the USD 100-a-barrel mark reached in mid-2014, despite recovering from near 13-year lows in February.
The Organization of Petroleum Exporting Countries today warned that the world remains awash with crude, as it prepared for Sunday’s meeting.
“Positive market sentiments continue to arise from the output freeze plan being considered by major crude exporters,” as well as an expected fall in output in the United States and elsewhere, OPEC said.
“Nevertheless, hurdles prevail as oversupply persists and inventories remain high,” the cartel warned.
The Doha talks will bring together OPEC members led by Saudi Arabia and non-OPEC producer Russia to discuss how to ease an oil glut that has depressed prices for nearly two years.
Yesterday’s price rally was driven by “optimism that Saudi Arabia and Russia have formed consensus towards an output freeze”, said Margaret Yang, an analyst with CMC Markets in Singapore.
“This has greatly increased the certainty in the upcoming freeze meeting this Sunday, regardless of Iran’s attitude,” she said.
Iran has said it will not join freeze calls as it is still ramping up production following the lifting of nuclear-linked sanctions in January.
Saudi oil minister Ali al-Naimi today appeared to rule out a cut in oil production, with the kingdom’s production in March almost at the same levels as in January.