Oil Prices Rise as Talk of Longer, Deeper Cutback Consensus Grows

At least one observer thinks Iraq could make an output cut extension difficult.

Hope rather than substance once again influenced the market positively on Monday, with speculation that the Organization of the Petroleum Exporting Countries (OPEC) might consider deepening its crude cutbacks as well as extending them causing West Texas Intermediate to settle up 40 cents to $50.73 and Brent to climb 20 cents to $53.81 per barrel.

Bjarne Schieldrop, chief commodities analyst at SEB Markets, said, "The decision (to extend cuts) seems to be almost a done deal; there seems to be a very high harmony in the group."

He is referring to Saudi Arabia, Iraq, and non-members Russia, Oman, and Mexico supporting a nine month extension; however, Phil Flynn, senior market analyst at Price Futures Group Inc., said that "An extension has been priced in" and "I wouldn't be surprised if they do something to wow the market, such as announcing a larger cut."

The optimism on Monday was such that Daniel Dicker, president at MercBloc, speculated that "oil won't dip below $50 again."

Speaking on Bloomberg television, Dicker credited Saudi Arabia for being "totally transparent" in their business dealings and OPEC members "for having all the discipline" in following through with their promised cutbacks; he also condemned the U.S. for "maniacally" undercutting the success of the cutbacks with steadily rising production.

One OPEC member Dicker presumably regards as disciplined is Iraq, whose oil minister Jabar al-Luaibi said during a speech on Monday that his country has achieved its share of the production cut agreement, or 210,000 barrels per day.

But as far as Helima Croft, commodities strategist at RBC Capital Markets, is concerned, getting Iraq to follow through on its agreement to extend its cuts under OPEC "is going to be interesting."

Croft told CNBC that Iraq will ultimately cooperate "but they might make it difficult along the way," pointing out that oil minister Jabbar al-Luaibi has fought hard to prevent his country from having to take what is the second largest hit to its production figures; she added that Iraq has the capability of raising production levels quickly.

The key question is: will OPEC members agree to deepening their cuts when they meet in Vienna later this week?

So far, unnamed OPEC sources have only teased that the matter will be considered, and John Kilduff, founding partner at Again Capital, recently summarized the situation by stating that "The focus is intensifying on what OPEC will do next; the prospect of longer cuts and a larger size are like a shiny object dangling in the sea."