Oil prices dropped Tuesday but held near one-year highs touched on growing expectations of an output cut by OPEC producers, with traders saying the price outlook remains bullish as confidence in crude markets rises.
Earlier on Monday, oil prices jumped as much as 3 percent, with Brent hitting a one-year peak, after Russia and Saudi Arabia both said a deal between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members like Russia in curbing crude output was possible.
International Brent crude oil futures were trading at $53.04 per barrel at 0225 GMT, down 10 cents from their previous close, not far off Monday’s $53.73 a barrel high.
U.S. West Texas Intermediate (WTI) crude futures were at $51.24 a barrel, down 11 cents from their last close, but also near Monday’s high of $51.60 a barrel.
“Oil rose to a one-year high on optimism regarding a future agreement between OPEC and major producers to restrict output,” ANZ bank said on Tuesday.
Carsten Fritsch of Germany’s Commerzbank said “the expectations of an OPEC production cut surely played a role” in the recent price rises of the futures market, where large volumes of new long-positions have been built up as the market becomes increasingly confident about rising oil markets.
However, sounding a note of caution, Fritsch said he had “significant doubts whether they (production cut targets) will actually be fulfilled” as rivalry between OPEC members, who are fighting aggressively for global markets share, could prevent an effective deal.
Goldman Sachs said in a note to clients on Tuesday that despite a production cut becoming a “greater possibility”, markets were unlikely to rebalance in 2017.
“Higher production from Libya, Nigeria and Iraq are reducing the odds of such a deal rebalancing the oil market in 2017,” the U.S. bank said, and added that even if OPEC producers and Russia implemented strict cuts, higher prices would allow U.S. shale drillers to raise output.