Futures dropped as much as 1.2 percent in London, extending Monday’s decline. Uncertainty over the outcome of Thursday’s meeting is creating the risk of a slide in prices, which have gained on assumptions that the curbs will be prolonged for nine months, according to Goldman Sachs Group Inc. OPEC backs such an extension but is still waiting for commitments from Russia, according to people familiar with the matter. Crude surged earlier this month on signs the Organization of Petroleum Exporting Countries and its partners will prolong cuts aimed at shrinking a global glut. Prices, time spreads and hedge-fund positioning all reflect a high probability the group will follow a Saudi proposal to extend the pact to the end of 2018, Goldman said. Yet Saudi Energy Minister Khalid Al-Falih said Tuesday that it’s too early to talk about the duration. Click Read More below for additional information.
Oil prices edged up on Monday on geopolitical concerns after Friday’s deadly attacks in Paris claimed by Islamic militants, but gains were muted due to a global crude glut.
France carried out large-scale air strikes against Islamic State sites in Syria overnight, giving oil market investors reason to step up buying activity after a week in which crude benchmark prices fell as much as 8 percent.
“Some risk premium is factored into the market after the terror attacks in Paris. We had an oversold market, so it is a technical recovery as well,” said Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg.
Front-month Brent crude prices were up 34 cents at $44.81 a barrel at 0415 ET. U.S. futures traded 36 cents higher at $41.10 a barrel.
An OPEC delegate from a Gulf producing country said he believed that in the mid-term oil prices could get some support due to rising tensions especially if the international community takes more steps to reduce smuggling of oil and hits oil facilities under Islamic State’s control in Syria and Iraq.
But oil and other commodities could also come under renewed pressure on fears the attacks will further slow the global economy.
Many analysts also continue to believe prices will remain under pressure due to abundant stocks of oil and slowing economic growth.
“Our outlook is skewed negative into (the first half of next year). Macro headwinds remain, crude oil inventories are building,” Morgan Stanley said.
Oil prices have dropped more than 60 percent since June last year as high production and inventories have coincided with an economic slowdown in Asia, particularly in China but also Japan, which slipped back into recession in the third quarter.