Khalid Al-Falih, energy minister for Saudi Arabia
Brent crude on Tuesday dropped almost 4 percent on reports that the Organization of the Petroleum Exporting Countries' (OPEC) deal to reduce oil output has been dealt a knockout blow and is down for the count - just one day before the ratification summit gets underway in Vienna.
Brent traded at $46.48 per barrel, down 3.7 percent, in London, and overall prices are at half their level of mid-2014, with demand continuing to be dwarfed by global oversupply.
The market has been increasingly choppy as the deadline for the November 30 summit looms closer, and the tense situation has been further exacerbated by disclosures such as Khalid Al-Falih, oil minister for Saudi Arabia (and the unofficial voice of the cutback deal) on Sunday suggesting for the first time that an agreement may not be reached.
The Saudi's will reject an accord unless all OPEC members, except for Libya and Nigeria, participate in the cutbacks
Alexander Novak, energy minister for Russia – a nation that has played both sides of the fence by voicing support of the deal and waffling on whether it will participate – on Tuesday said he has no plans to visit Vienna but is ready to talk if an OPEC consensus is reached – a stance that the Saudis are said to be unhappy with.
Reportedly, the Saudi's will reject an accord unless all OPEC members, except for Libya and Nigeria, participate in the cutbacks; holdout Iran has suggested freezing production at 3.975 million barrels per day (200,000 barrels above current daily output); but the Saudis and Algeria have counter-proposed a cap of 3.707 and 3.795 million barrels respectively.
Iraq too, recently viewed as agreeable to the cutback scheme, is causing pre-summit talk trouble: Bloomberg reports, "While Iraq finally appeared to accept that OPEC supply estimates known as `secondary sources' should determine the basis for cuts, it was still insisting it should be allowed to freeze at October's output of 4.6 million barrels a day, according to one delegate.
"That's roughly the same level as would be reached if the proposal for a group-wide cut of 4 to 5 percent were applied to Iraq's own output estimate of 4.8 million barrels a day."
Earlier this month, Jeff Currie, global head of commodities research for Goldman Sachs, mused that while the OPEC deal may be a symbolic gesture rather than a useful cut, its ratification would be a crucial component in reducing market volatility.