Oil prices strived for direction in European trade on Tuesday, as investors paused for breath following an impressive three-day rally which boosted prices by nearly 10% amid indications major oil producers are reconsidering a collective production action, possibly freezing or capping the output “if necessary”, in a bid to boost the market and rein in the ballooning oversupply.
This 10% raise started last Thursday after Saudi Arabia’s energy minister said the country would work with other oil producers to stabilize prices at an Organization of the Petroleum Exporting Countries meeting in Algeria next month, in an effort to reduce a global overhang in production and inventories of crude oil and refined fuel products.
However, many traders have voiced their doubts over OPEC’s ability to agree amongst its divided members, and expect talks will fail just as they did in April. Apparently, OPEC is currently not as powerful as it used to be before. Oil prices took 20 years to rise again when it fell in 1946, and many analysts are scared that this would happen again, which isn’t impossible when looking at present crude prices.
On the ICE Futures Exchange in London, Brent crude for October delivery inched up 6 cents, or 0.12%, to trade at $48.41 per barrel, flat from their last close, but over 15% higher than the $41.51 low for the month on August 2. In US West Texas Intermediate crude was trading at $45.76 a barrel, up 2 cents from its previous close, and still over 16% above its $39.19 monthly low from August 3.
On Monday, London-traded Brent prices surged to $48.54, a level not seen since July 12, while crude oil for September delivery on the New York Mercantile Exchange rose 7 cents, or 0.15%, to trade at $45.81 a barrel after rallying to $45.93 in the prior session, the most since July 21.
Traders said that earlier price declines were the result of cashing in following the two-week long rally, while the gains were driven by expectations from investors that OPEC may cap the output to stop oversupply. Analysts also said that concerns over oil production in Venezuela were backing higher markets.
The holder of the world’s largest crude oil reserves, Venezuela, could possibly suffer its steepest annual oil output drop in 14 years as it struggles with an economic and political crisis. Evidence of this is in the 12 months to June, Venezuela’s crude output fell 9% to 2.36 million barrels per day, and trade data from Reuters showed that PDVSA’s crude exports, which is 94% of the country’s hard currency income, fell to 1.19 bpd in July, excluding independent sales made by its joint ventures.
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