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Oil futures slumped to their lowest close in more than four years Tuesday, as traders grew more doubtful the Organization of the Petroleum Exporting Countries will deliver meaningful` production cuts when cartel officials meet later this week.
Nymex WTI crude for January delivery dropped $1.69, or 2.2%, to close at $74.09 a barrel, the lowest finish for a most-active futures contract since September 2010. ICE January Brent dropped $1.35, or 1.7%, to $78.33 a barrel. The tone was set in mid-morning trade after a meeting of energy officials from four major oil-producing countries failed to reach an agreement on output cuts. Oil briefly pared losses after The Wall Street Journal said OPEC was inching toward a compromise on production cuts, but support soon gave way, leaving oil to set new lows.
For now, skeptics who think OPEC will largely stand pat seem to be in the driver’s seat. “If OPEC’s strategy really is patience, then the cartel’s Nov. 27 meeting may produce either no cut or only a small reduction,” of around 500,000 barrels a day, said Paul Christopher, chief international strategist at Wells Fargo Advisers. Supply and demand can re-balance at prices above current levels, Christopher said, in a note, but the process may be slow. Christopher said he now sees Nymex WTI crude ending 2015 in the $88-to-$92-a-barrel range, down from an earlier estimate of $97 to $102.
Oil came under pressure after news reports said a meeting of officials from Venezuela, Saudi Arabia, Mexico and Russia’s OAO Rosneft failed to achieve a compromise on oil. Reports said the officials agreed to meet again in three months to discuss oil markets. Russia, the world’s second-largest oil producer, and Mexico, the tenth-largest, aren’t OPEC members.
The Wall Street Journal reported that Saudi Arabia is likely to adhere to calls for the cartel to stick closer to its production ceiling of 30 million barrels a day, the report said, citing a Gulf official familiar with the Saudi position. Riyadh’s intentions, however, haven’t been clearly communicated to other members, and Saudi Arabia could decide to go a different route by the time of the Thursday meeting, the official told the Journal. The cartel has been exceeding its existing production ceiling of 30 million barrels a day, producing around 30.7 million barrels a day in September, according to the International Energy Agency. Analysts have said an agreement to stick to the ceiling could provide some near-term support, but have argued it would likely take a bigger reduction to provide a more sustainable bounce.
Oil prices have plunged more than 30% since midyear on growing global supplies of oil and weak demand growth. Bulls had taken some comfort from data that showed the U.S. economy expanded even faster in the third quarter than previously reported, offering further evidence the U.S. entered the final stretch of 2014 on an accelerated track.