Oil prices tumbled Monday amid doubts over OPEC’s proposed output cut, after Iraq signaled it wants to be excluded from the pact.
Light, sweet crude for December delivery settled down 33 cents, or 0.6%, at $50.52 a barrel on the New York Mercantile Exchange. U.S. oil nearly fell as low as $49.62 a barrel before a rebound throughout the afternoon. Brent, the global benchmark, fell 32 cents, or 0.6%, to $51.46 a barrel.
Iraqi oil officials Sunday were reported to have said they wouldn’t scale back output, which currently stands at 4.77 million barrels a day. Iraq is the second largest Organization of the Petroleum Exporting Countries producer after Saudi Arabia, making its commitment to any cut to OPEC’s oil output key.
Enterprise Products Partners also announced Monday a leak led it to shutter its Seaway Pipeline, which can carry 400,000 barrels a day to the Gulf Coast from the Cushing, Okla., hub for U.S. oil. That had some concerned about oil supplies backing up and initially caused U.S. prices to fall much further than international prices.
But the market pared those losses throughout the day, a further sign that many bullish traders are eager to jump in and bet the market is ending a long period of oversupply, said Scott Shelton, broker at ICAP PLC. OPEC members are scheduled to meet Nov. 30 to discuss limiting the group’s production under 33 million barrels a day, which already had helped the market rally 30% in less than three months.
Skeptics are also still active, though, and the market has given back 2.1% since hitting a new one-year high last week. Many are bracing for the OPEC deal to flop given the members’ record of not complying with quotas.
“There is a risk that Iraq’s refusal could trigger a domino effect that other producers would ask to be exempt from the cuts too,” said Gao Jian, an energy analyst at SCI International.
“If they do nothing, OPEC production next year is likely to average at least 34 mbpd (million barrels a day) with a real threat of it reaching close to 35 mbpd if the chaos in Libya and Nigeria were to be resolved,” brokerage PVM said.
Oil prices are also under pressure as the number of active oil rigs in the U.S. continue to climb. Last week, the oil-rig count rose by 11 to 443, according to oil-field services company Baker Hughes Inc.
The U.S. oil-rig count is typically viewed as a proxy for activity in the sector. After peaking at 1,609 in October 2014, low oil prices put downward pressure on production and the rig count fell sharply. The oil-rig count has generally been rising since the beginning of the summer and the uptrend is likely to continue, Morgan Stanley said in a note.
“Rig count typically lags prices by three to four months, so we would expect to see more rigs added, especially near year-end,” the bank said.
China’s crude oil imports surged 18% in September, while gasoline exports rose 37% and diesel exports were up 44% versus the same period a year ago. Independent refiners in China have emerged as an important force in oil markets this year. They accounted for the vast majority of the 14% surge in imports this year by China, which now rivals the U.S. as world’s largest crude importer.
Political developments in Venezuela are being monitored after the congress announced they would begin impeachment proceedings against President Nicolás Maduro. The country’s oil-dependent economy has been hit hard by the prolonged collapse in crude price. Its oil production in the 12 months to September declined 11% to 2.3 million barrels and the economy is expected to contract by at least 10% this year.
Gasoline futures lost 2.76 cents, or 1.8%, to $1.5038, its largest daily decline since Sept. 20. Diesel futures gained 0.58 cent, or 0.4%, to $1.5798 a gallon, its fourth gain in five sessions.