Oil prices down on doubts over OPEC deal
Singapore : Oil prices fell in Asia today as doubts emerged over the long-term success of a surprise OPEC agreement to cut output and stabilise the oversupplied market.
The Organisation of the Petroleum Exporting Countries on Wednesday stunned traders by announcing plans to trim collective production by around 750,000 barrels per day.
Initial euphoria over what would be the first output cut in eight years sent prices soaring six percent but the rally fizzled yesterday as traders digested the nuts and bolts of the deal remained to be agreed.
A technical committee has been formed to flesh out the details ahead of the cartel’s formal meeting on November 30, including the allocation of the cuts for each member.
At around 0400 GMT, US benchmark West Texas Intermediate was down 27 cents at USD 47.56 and Brent eased 31 cents to USD 48.93.
“There are concerns about the execution of OPEC’s new production targets and many actually feel that the headlines are more bullish than the reality of the situation,” IG Markets analyst Chris Weston said in a note.
“Even when the new agreement is finalised, the actual reductions won’t materialise until 2017 and the prospect of various nations exceeding targets is real.”
Other analysts also doubted whether cooperation between Saudi Arabia and bitter rival Iran, which is crucial to the deal, would hold.
“Relations between Saudi Arabia and Iran remain poor and, while the OPEC deal has huge significance politically, we do not see room for a broader rapprochement between the two,” BMI Research said in a commentary.
“Historically, quotas have been a highly contentious issue and low prices and mounting fiscal pressures have only served to raise the stakes,” it added.
In a major concession, OPEC kingpin Saudi Arabia allowed Iran to be exempted from the cuts as Tehran recovers from years of Western economic sanctions lifted only in January.
“Tensions are liable to mount, as negotiations progress,” BMI said.