Oil Falls From 16-Month High as OPEC Seeks Wider Cut Cooperation

Oil prices extended gains on Friday on optimism that non-OPEC producers would agree to cut output following a cartel agreement to limit production.

Oil prices slipped on Wednesday ahead of a US petroleum inventory report and on doubts production cuts promised by OPEC and Russian Federation would be deep enough to end a supply overhang that has weighed on markets for more than two years. Those countries and OPEC meet this weekend to finalize the terms. US light, sweet crude was up 40 cents, or 0.8 percent, at $50.17 a barrel. As OPEC has met to clinch the deal this week, industry observers aren’t sure who’s on board with the production cuts and who’s not, and whether the deal has staying power.

However, Bloomberg News calculations based on OPEC data show that across the whole of 2017 there will be little overall reduction in record oil inventories – even if the group convinces non-members to join supply curbs at a meeting on Saturday.

USA crude futures strengthened Monday before retreating in post-settlement trade as the market lost confidence OPEC cuts would be sufficient to reduce oversupply given increased U.S. drilling.

Still, both benchmarks remained roughly 2 percent below the highs reached just after the Organization of the Petroleum Exporting Countries announced plans to cut production late last month, and were on track to close the week with small losses. However, the oil-dependent OPEC economies have also been harmed, and revenue to OPEC nations has also fallen as a result of lower prices.

Also, the U.S. Energy Information Administration’s lower-than-anticipated crude oil inventory measurements supported oil prices.

Russia’s Energy Minister Alexander Novak will meet oil companies Wednesday ahead of talks with OPEC representatives on December 10, according to people with knowledge of the matter.

The price of February futures for Brent crude oil rose by 0.41 percent and stood at $54.11 per barrel as of 01:16 EST.

– USA crude inventories probably dropped by 1.5 million barrels last week, according to the median estimate in a Bloomberg survey before EIA data.

“We will see whether belief in the (OPEC production) deal will hold”, said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt.

It also represented a dramatic reversal from OPEC’s Saudi-led game plan, introduced in 2014, of flooding the market to force out rivals, in particular U.S. shale oil producers.

Despite the scepticism around implementing the cuts, analysts said 2017 will likely see a more balanced market.