Oil Futures Lower on OPEC Cut Doubts

NEW YORK (DTN) -- New York Mercantile Exchange oil futures ended lower Friday afternoon on profit-taking ahead of the weekend, and as talks got underway by a committee of the Organization of Petroleum Exporting Countries gathered in Vienna to discuss the details of implementing a Sept. 28 agreement to cut production.

The meeting of the High Level Committee is made up of OPEC governors and country representatives -- senior officials who report to their respective oil ministers. They are allocating output quotas for member countries, and the latest reports said not only have they failed to find common ground after seven hours of talks, but also that Iran is now opposing the tentative deal agreed to last month in Algiers.

The report of Iran opposing the deal raised fresh concern the effort to cut production may not succeed, setting off selling pressure on the oil futures complex.

NYMEX December West Texas Intermediate crude oil futures settled $1.02 lower at $48.70 per barrel (bbl), off a $48.42 three-week spot low, and down $2.15 for the week.

On the IntercontinentalExchange December Brent futures declined 76 cents to $49.71 bbl at settlement, off four-week spot low of $49.31, and down $2.07 for the week. The December Brent contract expires on Monday, with the January contract settling down 92 cents at $49.71 bbl.

NYMEX November ULSD futures settled down 2.79 cents at $1.5422 gallon, off a three-week low of $1.5323, and down 3.18 cents for the week. The November RBOB futures contract fell 1.80 cents to $1.4691 gallon at settlement, off a two-week low of $1.4593, and down 6.23 cents for the week.

The November products contracts expire at the close on Monday, Oct. 31.

During informal talks in Algiers in late September, OPEC agreed to a framework to reduce their oil production to a range of 32.5 million to 33.0 million barrels per day (bpd) in an effort to stabilize the market after two years of slumping oil prices. If enacted, it would be the first output cut by OPEC since 2008.

Since then, the cartel's High level Committee, a technical group that works out policy details, has been working to allocate quotas among member nations to reach the cited production range that has been met with a great deal of pushback.

Earlier this week, Iraq asked for an exemption from the agreement, indicating its need for revenue as it battles the Islamic State, and unhappy with a proposed quota allocation of 4.455 million bpd. The quota was based on Iraq's September production rate provided by secondary sources, although Iraq wanted a 4.775 million bpd quota based on its self-reported output rate for September.

Iraq has now accepted to go along with a revised quota of 4.7 million bpd, but Venezuela and Indonesia are also seeking exemptions. Nigeria and Libya, which are producing under their capacities, are exempt from the quotas as is Iran.

Iran's latest protest is difficult to understand given its exempt status.

Saudi Arabia, a key OPEC member that has been pushing for the supply deal and its Arab Gulf allies does not support additional exemptions.

OPEC Secretary-General Mohammed Barkindo said the producer group is facing its biggest test yet, but also expressed optimism that a final agreement would be reached and ratified during the planned Nov. 30 biannual summit in Vienna.

On Thursday, the Arab Gulf nations said they were willing to cut 4% of their supply.

A separate meeting between OPEC and non-OPEC producers -- Russia, Kazakhstan, Mexico, Oman, Azerbaijan, Brazil and Bolivia -- is set for Saturday, Oct. 29, details of which are expected to be known over the weekend.

Domestically, Baker Hughes, Inc. reported that the U.S. oil rig count fell by two to 441 for the week-ended today, the first drop in about four months. On Wednesday, the Energy Information Administration reported a 40,000 bpd increase in U.S. production to an 8.504 million bpd five-week high.

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