NEW YORK – Oil prices jumped as much as 2% on Tuesday, reversing early losses, after Reuters reported that Iran was sending positive signals that it may support joint Opec action to prop up the market. China’s July exports of diesel and gasoline jumped by 181.8% and 145.2%, respectively, for the same month year-over-year. “A production freeze would also likely prove self-defeating if it succeeded in supporting oil prices further, with the US oil rig count up 28% since May”.
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Brent for October settlement lost as much as 66 U.S. cents, or 1.3 per cent, to US$48.50 a barrel on the London-based ICE Futures Europe exchange, having slipped 3.4 per cent on Monday. It hit a two-month high of $51.22 on Friday.
West Texas Intermediate (WTI) for October delivery lost as much as 79 USA cents to US$46.62 a barrel on the New York Mercantile Exchange and was at US$46.81 as of 9.54am, London time.
Deal or no deal, oil prices will remain volatile until the completion of the meeting in Algeria and traders should be ready for more wild swings in the oil markets until then.
If OPEC and some producers from outside the group agree to cap output at informal talks next month, the resulting price boost may help other suppliers revive production, Goldman Sachs analysts wrote.
“It is unlikely Riyadh will take any freeze negotiation seriously as officials believe the market share policy is slowly but surely working”, Morgan Stanley said, referring to the Saudi policy of defending market share over price support.
Nonetheless, when oil prices were threatening to break below the $40 a barrel mark and slide towards the $35 mark, rumours began to float of a possible OPEC intervention to freeze production.
Both main oil contracts surged last week as it emerged that the OPEC producers club and its rivals will meet next month, with speculation they could discuss ways to tackle an oversupplied market.
Consequently, Barclays analysts argued that the 20% rally in August was unwarranted and that oil prices of $50 per barrel or higher were unsustainable.
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“Oil prices will likely experience another short-term dip in the coming weeks… before more sustainably moving to average $50” in the fourth quarter, it added.
