Crude-oil prices largely stayed put in early Asian trade Thursday as traders await the outcome of a meeting of the Organization of the Petroleum Exporting Countries later in the day, where discussion on a collective output ceiling could be revived.
August Brent crude on London’s ICE Futures exchange rose $0.05 to $49.77 a barrel. On the New York Mercantile Exchange, light, sweet crude futures for delivery in July traded at $48.93 a barrel at 0204 GMT, down $0.08 in the Globex electronic session.
Ahead of the closely-monitored meeting in Vienna, which is scheduled to begin at 0800 GMT, several delegates said the group could discuss a production ceiling, an idea that Saudi Arabia is considering backing. However, Iran later rejected the proposal, potentially derailing the plan.
Talks about a ceiling represent a return to OPEC’s traditional way of doing business. In recent months, failed discussions have centered on limits on individual countries’ output, whereas a ceiling would place a cap on the whole group’s output. Until December, OPEC had a production ceiling of 30 million barrels a day—a limit it routinely breached.
After OPEC scrapped its production ceiling in December, oil prices descended to 13-year lows within weeks. Most analysts said the meeting will largely be a formality with the cartel sticking to the “no-cut” strategy as players are mainly driven by competition for market share.
“We see no reason as to why OPEC members…would now choose to reverse policy,” said BMI Research.
The firm points out Saudi Arabia will remain opposed to reducing its output as this would facilitate Iran’s return to market. Iran will want to export as much as it can as it reasserts itself in international markets, while Iraq also has a desperate need for oil revenues to pay its military and contractors.
Moreover, a rebound in prices in recent months, spurred by declining production outside of OPEC has undercut any impetus for a production cut.
 “We think that the production freeze agreement last formally rejected with Brent trading at $40-$45 will be rejected again Thursday,” said Tim Evans, a Citi Futures analyst, who expects OPEC production to hit 33 million barrels a day later this year.
In April, based on the cartel’s own monthly report, OPEC crude-oil production rose 188,000 barrels a day to average 32.44 million barrels, according to secondary sources. The next report will be released on June 13.
Imminent resumption of Canadian oil production could add more pressure on prices, but ongoing supply outages in Nigeria and Libya could weigh on growth in global supply for now.
Market watchers will also eye the weekly U.S. crude data to be released later on Thursday. Analysts surveyed by The Wall Street Journal estimate a 2.8 million-barrel drop in domestic stockpiles, while industry group American Petroleum Institute expects a 2.4 million-barrel expansion.
Still, there are several factors likely to prevent rapid price rallies in the coming months, said a Credit Suisse report. The biggest risks the bank sees include Saudi Arabia raising production to take customers from their rivals, a strengthening dollar, a U.K. vote to leave the European Union and Republican nominee Donald Trump’s presidential bid.
Source: WSJ, June 2, 2016 1:32 a.m. ET