Oil fell back from one-year highs on Tuesday, knocked by concern that a production cut by the world’s largest exporters might not be enough to erode a two-year old global surplus of unwanted crude oil.
Oil prices jumped as much as 3 percent on Monday, after Russia and Saudi Arabia both said a deal between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members like Russia in curbing crude output was possible.
December Brent crude oil futures were down 51 cents at $52.63 a barrel by 0915 GMT, below Monday’s one-year high at $53.73, while US futures fell 45 cents to $50.90 a barrel.
Global oil supply could fall into line more quickly with demand if OPEC and Russia agree to a steep enough cut in production, but it is unclear how rapidly this might happen, the International Energy Agency said on Tuesday.
“The word I look at is “if”,” Saxo Bank senior manager Ole Hansen said. “OPEC’s compliance (track record) with its own limits is not good.
“What it all ads up to is an increased belief that a firm bottom has been established, but as the market moves higher the risk of self-defeat rises as it opens the door right open for the return of production growth among high-cost producers,” he said.
Igor Sechin, Russia’s most influential oil executive and the head of Kremlin energy champion Rosneft, said his company will not cut or freeze oil production as part of a possible agreement with OPEC.
Goldman Sachs said in a note to clients on Tuesday that despite a production cut becoming a “greater possibility”, markets were unlikely to rebalance in 2017.
“Higher production from Libya, Nigeria and Iraq are reducing the odds of such a deal rebalancing the oil market in 2017,” the U.S. bank said, and added that even if OPEC producers and Russia implemented strict cuts, higher prices would allow U.S. shale drillers to raise output.
Adding to the drag on oil, the dollar rallied to its highest in 11 weeks, lifted by rising expectations that the Federal Reserve could raise U.S. interest rates by the end of the year.
Carsten Fritsch of Germany’s Commerzbank said “the expectations of an OPEC production cut surely played a role” in the recent price rises of the futures market, where large volumes of new long-positions have been built up as the market becomes increasingly confident about rising oil markets.