Oil prices fell early on Thursday as a row between Saudi Arabia and Iran made it unlikely that the OPEC would agree any output constraints during a meeting in Vienna, just as demand worries from China resurfaced.
International Brent crude oil futures were trading at $49.58 per barrel at 0053 GMT, down 14 cents from their last settlement, while US West Texas Intermediate (WTI) crude was down 26 cents at $48.75 a barrel.
The Organization of the Petroleum Exporting Countries (OPEC) is set for another showdown between rivals Saudi Arabia and Iran when it meets on Thursday in the Austrian capital, with Riyadh trying to revive coordinated action or a formal oil output target, but Tehran rejecting both ideas.
“An output ceiling has no benefit to us,” said Iranian Oil Minister Bijan Zanganeh upon arriving in Vienna ahead of OPEC’s regular meeting on Thursday.
Driven largely by rising output from the Middle East, OPEC’s output is near record highs of over 32.5 million barrels per day (bpd), although there have been some disruptions, especially in Nigeria and Libya.
The spat between leading Saudi Arabia and Iran comes just as concerns have resurfaced over China’s demand.
“OPEC members will be keeping a close eye on China, with the low factory activity data that has been released possibly signalling a diminishing demand for oil – something that could do real damage to oil prices,” said Mihir Kapadia, CEO at Sun Global Investments.
Car sales in China, an important gauge for gasoline and, by extension, crude oil demand, have also falllen by almost a quarter since the end of 2015 to 2.12 million new registered vehicles in April.
Despite the price falls, low cost producers, especially in the Middle East, are feeling less inclined to restrain output as overall market conditions have improved significantly for exporters this year.
“With oil prices having rallied considerably since the abysmal start to the year … (OPEC) delegates are unlikely to be forced into extreme action,” Kapadia said.
Although prices are resisting a break above $50 per barrel, Brent is still 80 percent above a more than a decade low it hit in January.