Oil Down on Profit-Taking

NEW YORK (DTN) -- New York Mercantile Exchange oil futures declined on reports that Saudi Arabia and Iran have so far been unable to agree on a plan to freeze oil production just days before next week's informal talks by the Organization of Petroleum Exporting Countries in the Algerian capital of Algiers.

The market now awaits Baker Hughes' weekly oil rigs data due out later today.

After a month-long campaign by OPEC Secretary-General Mohammed Barkindo to rally support of the 14 OPEC members for action to rein in supply and stabilize the market, Saudi Arabia and Iran, rivals in politics and within OPEC, met this week in Vienna to prepare for the informal talks scheduled for Sept. 26-28 in Algiers during the International Energy Forum.

Saudi Arabia offered to reduce its oil production if Iran agrees to limit its own output this year, a major compromise ahead of talks in Algiers next week, Reuters reported. However, the report said the Saudi offer has yet to be responded to by Iran and added that the Saudis are ready to cut output to levels seen early this year in exchange for Iran freezing production at current levels.

OPEC data shows Iran told the cartel it produced 3.63 million bpd in August while Saudis told the cartel it produced 10.2 million bpd during the first quarter. The Saudis and Iranians have recently signaled they could harmoniously work together, but their output levels are near record highs and they are yet to find a common ground on the issue of oil production levels.

As a consequence, uncertainty remains and bearish sentiment is weighing on the oil market, including doubts next week's OPEC meeting would succeed in reining in on output.

At last look, NYMEX November West Texas Intermediate crude oil futures eased 39cts lower at $45.93 bbl, reversing off a $46.55 two-week spot high. ICE November Brent futures fell 21cts to $47.44 bbl, reversing off a $48.26 near two-week high.

In products trade, NYMEX October ULSD futures contract eased 0.48cts to $1.4494 gallon, reversing off a $1.4691 two-week high. NYMEX October RBOB futures dropped 1.55cts to $1.3863 gallon, off a three-day low of $1.3635.

On Wall Street, U.S. equities were also weaker on risk-off trade, with the dollar index edging higher after seesawing near Thursday's level.

On Wednesday, the Energy Information Administration showed draws for U.S. commercial crude oil and gasoline inventories for the week-ended Sept. 16. The report indicated a 6.2 million bbl crude oil drawdown, a 3.2 million bbl decline in gasoline stockpiles and a 2.2 million bbl build in middle distillates. Gasoline demand surged by 244,000 bpd and demand for distillates increased by 155,000 bpd.

George Orwel can be reached at george.orwel@dtn.com