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Traders’ Pessimism over OPEC Freeze Send Oil Futures Plummeting

September 23, 2016 at 17:35 by Andrew Moran

Will the Organization of the Petroleum Exporting Countries (OPEC) agree to cap oil production levels at next week’s meeting in Algeria? The unknown is causing oil futures to struggle for an upwards direction as traders are uncertain whether or not OPEC members can come to an agreement regarding an output freeze.

November West Texas Intermediate (WTI) crude plunged $1.76, or 3.80%, to $44.56 per barrel at 17:07 GMT on Friday on the New York Mercantile Exchange. US crude has moved higher for four consecutive trading days. It will settle on Friday with a 7% weekly gain.

November Brent crude tumbled $1.69, or 3.55%, to $45.96 a barrel on London’s ICE Futures exchange. Brent will also end the trading week with a 5% weekly gain.

OPEC will hold informal talks in Algiers from September 26 to 28. The purpose of the meeting is to negotiate a freeze on oil production. At first, when the meeting was announced, there was some optimism. Lately, traders are not optimistic about OPEC coming to an agreement to freeze output.

A new Reuters report suggests that Saudi Arabia will only agree to a production freeze if Iran does. Reports say that the Saudis want the Iranians to cap their production efforts at 3.6 million barrels per day (bpd). Iran is still mulling over the offer, but experts are skeptical the government will agree because Tehran has been working diligently over the last 12 months to control a larger share of the oil market.

The aim of freezing oil output is to raise prices. However, Russian Finance Minister Anton Siluanov told CNBC on Thursday that he does not believe limiting production efforts will actually boost prices.

A freeze on the part of several countries … will not produce the effect that some people are anticipating … There is the possibility that there will be an increase in oil production as a result of shale oil and then the prices will fall again.

US crude prices slid further near the end of Friday’s trading session after a new Baker Hughes report found that US oil drilling rig count jumped by two to 418.

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