Crude futures fell Monday amid growing signs of intransigence among OPEC members following the group’s agreement to limit output, and market belief that any momentum gained from the agreement has now been priced in.
U.S. crude futures for November delivery settled down 41 cents, or 0.81%, at $49.94 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, lost 43 cents, or 0.83%, to $51.52 a barrel on the ICE Futures Europe.
The Organization of the Petroleum Exporting Countries’ agreement last month to cut production has propelled crude markets upward in recent weeks. But the plan doesn’t say how much each individual country will have to cut, and disputes over how OPEC calculates countries’ output could become sticking points standing in the way of a deal.
Ali Kardor, managing director of National Iranian Oil Co., said Monday in Tehran that OPEC’s output estimates are “not acceptable,” and said Iran is producing more than the cartel has estimated, according to Bloomberg News.
Iran would be exempt from any cuts under last month’s agreement, but signs of the country’s commitment to increase production are weighing on prices.
“Oil is back under pressure because we’re seeing rumblings out of members of OPEC who are unhappy with how the production figures are calculated,” said Andy Lipow, president of Lipow Oil Associates in Houston.” “The market has become more and more skeptical of an actual implementation.”
Stephen Schork, author of the energy trading newsletter, the Schork Report, said recent high prices can’t be sustained unless the cartel continues generating bullish headlines.
“Without that, what do we have here? A market that has been inflated over the past few weeks based on the rhetoric we’re getting out of OPEC.”
Commerzbank pointed to the growing number of net long positions, a market term for a commodities contract that expects prices to rise, as proof that traders are expecting higher prices. However, it added that the situation could change quickly.
“Whether investors will stick to their guns will depend primarily on whether OPEC maintains the credibility of its announced production cuts, “ Commerzbank analysts said in a note.
Meanwhile in the U.S., market participants are anticipating that crude supplies could increase for a second week, with refiners running more slowly as they undergo seasonal plant maintenance, said Carl Larry, director of oil and gas at Frost & Sullivan.
“Repairs are going to last longer than normal” after a summer of running at high rates, he said.
The U.S., the oil-field services company Baker Hughes Inc. reported that oil rig count increased by four last week. Rig counts are generally viewed as a proxy for activity in the U.S. oil sector and observers believe that as prices stay above $50 a barrel, the number could increase further in the coming weeks.
Gasoline futures fell slightly, settling down 0.08% at $1.4924 a gallon. Diesel futures fell 1.12 cents, or 0.71%, to $1.5561 a gallon.