On Tuesday, oil prices plunged on an increase in Iranian exports that adds to a global supply overhang, but a planned Organization of the Petroleum Exporting Countries (OPEC) led output reduction later this year offered some support.
International Brent crude oil futures were trading at $50.70 per barrel at 0519 GMT, down 18 cents from their previous close.
U.S. West Texas Intermediate (WTI) crude declined 25 cents at $48.56 a barrel.
Traders stated prices were dented by the recent increase in Iranian crude and condensate sales, which likely touched approximately 2.8 million barrels per day in September, almost similar to the 2011 high in shipments before sanctions were imposed on the Organization of the Petroleum Exporting Countries (OPEC) producer.
However, analysts stated Iran will fight to increase production more and reaching pre-sanctions levels make it more likely Tehran will agree on some form of production constraint with other members of the OPEC, including its regional competitor Saudi Arabia, which is also pumping oil near record levels.
There was optimism that the Organization of the Petroleum Exporting Countries producers, and probably also exporters outside the club like Russia, would find some form of arrangement by the time the group meets in November, even though the risks of failure stay.
“For now, optimism has returned and the market will anxiously await any confirmation of the agreement or additional non-OPEC participation,” Morgan Stanley stated in a note to clients.
It added that “the risk of disappointment is high, and fundamentals remain challenging/unchanged in the interim”.
The U.S. bank stated significant price factors to look out for in coming weeks include discussions on production with non-OPEC members, most particularly with Russia, output within the Organization of the Petroleum Exporting Countries as its members try to squeeze out oil before any possible reduction or freeze, hedging activity by producers in 2017 as forward price guidance, and U.S. inventory and import data.
The overall higher crude prices since the announcement of a possible supply reduction by the Organization of the Petroleum Exporting Countries (OPEC) has hit profits in the refinery sector, where crude is the main feedstock.
Asian benchmark Singapore refinery margins have dropped approximately a third in the last five days to under $5 per barrel.
Further than the higher crude feedstock prices, traders stated that a seasonal slump in product demand during an ongoing fuel supply overhang was also weighing on refinery products.
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