OPEC sources told Reuters on Monday that a meeting of experts failed to agree on how a proposed 1 million barrels per day production cut would be implemented.
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Both Goldman and Barclays said oil prices would quickly move above $50 per barrel if a production cut is agreed by OPEC.
In September the cartel agreed in principle to lower production to 32.5-33.0 million barrels per day, meaning a cut of between 600,000 and 1.1 million bpd.
Oil prices increased five percent to $49.10 a barrel this morning after Saudi Arabia announced it was close to a deal on production – the prices having fallen four percent the previous evening.
At the meeting in Vienna, key members of OPEC expressed renewed optimism as compromises were reportedly being made.
Iran and Iraq have been resisting pressure from Saudi Arabia to curtail production, making it harder for the group to reach an agreement on output cuts.
Indonesian Energy Minister Ignasius Jonan said he was not sure OPEC would clinch a deal to limit oil output when it met.
The JGBs have been closely following developments in oil markets due to their impact on inflation expectations, which are well below the Bank of Japan’s target.
Iran has only been able to freely export oil since last year’s nuclear deal came into force in January, and wants to return to pre-sanctions output levels. The size of the cuts suggested by al-Abadi would be big enough to push up prices, he said.
OPEC president Qatar said non-OPEC producers had agreed to reduce output by a further 0.6 million bpd, of which Russian Federation would contribute some 0.3 million. Negotiations got bogged down in a game of poker between OPEC’s three biggest producers, Saudi Arabia, Iraq and Iran on who would do the heavy lifting. The best possible result, at this stage, was that the club would end up with a face-saving deal while “kicking the can to the next OPEC meeting in half a year’s time”, Schieldrop said. Tehran had insisted on keeping its production near 4 million barrels a day, which is the amount it was pumping before sanctions were imposed.
Iraq has also been pressing for higher output limits, saying it needs more money to fight the militant group Islamic State. The group of oil-producing countries pumped out 31.3 million barrels per day as of May, 2015, the highest level of oil production since August, 2012.
An Iraqi delegate on Wednesday said that some form of agreement would be reached, and Iran’s oil minister also said he was optimistic.
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Defending the justification for a cut in production, the OPEC President added that they “also need to recognize that in recent years we have also seen a rise in non-OECD inventories, plus an expansion in some non-OECD strategic petroleum reserves”.
