The oil prices on Wednesday decreased by almost 2% due to growing doubts that the Organization of the Petroleum Exporting Countries (OPEC) will slow production levels. All gains initially achieved following a report on the drop of U.S. crude oil reserves were erased.
According to a report by the U.S. Energy Information Administration (EIA), U.S. crude oil reserves decreased by 553,000 barrels during the previous week, while estimates by analysts were for a build-up of supplies by almost 1.7 million barrels.
According to the EIA, weekly reports on inventories held by the U.S. which is the world’s largest crude oil producer, showed an increase only once out of the last eight. This goes against the seasonal trend where normally reserves increase because crude oil refineries pause to be serviced. An earlier report released on Tuesday by the American Petroleum Institute (API) on the change in inventories estimated a surge by 4.8 million barrels.
After the news, OIL/USD jumped by a noteworthy 4.2% and reached the $50 per barrel level at one point, specifically at $50.09 per barrel. However, the gains were short-lived as the price moved downwards following limited expectations on whether OPEC will reach a decision on reducing oil production. Crude oil prices ended Wednesday’s trading session at $49.26 per barrel, only one cent lower than the trading session’s opening price.
The upcoming OPEC meeting at the end of November is now of increased importance to investors, as a number of OPEC members might oppose the decision to limit oil output. Oil prices were affected following verbal comments by Iraq officials that they are not planning to agree to a proposed cut in production that the Organisation is planning to put forward during the upcoming meeting.
Confidence within the markets on whether OPEC will reach an agreement has been shaken as it is already expected that Iran, Libya and Nigeria might not agree to the deal. Indonesian officials said last week that they are planning to increase production levels during 2017 by almost 50% and so it is almost certain that they too might not join the agreement.
The oil minister of Iraq, who is OPEC’s second largest crude oil producer, said in an interview that the escalation of the conflict by its military forces to fight Islamic State implies that revenues from crude oil production are essential. During the OPEC meeting in Algiers on Friday, Iraq pointed out that the Organisation had underestimated its production levels, which are 4.7 million barrels per day while the Organisation’s estimates were for 4.2 million barrels per day. Iraq is also considering to increase its oil production through new oil developments.
It is therefore estimated that Arab producers in the Middle East, Kingdom of Saudi Arabia, Kuwait and the UAE, might be the only members to agree on a production cut. The effect of that deal would be much greater if Russia which is the world’s third largest crude oil producer, joins in.