Oil Futures Decline to New Reaction Low

"As we get closer and closer to the OPEC meeting, producers are going to try to both manage market expectations in the case of a failure and also try to stake out their positions".

The Organization of the Petroleum Exporting Countries estimates its output at 33.39 million bpd, meaning it needs to cut about 400,000 to 900,000 bpd to meet its target.

However, other OPEC officials including Secretary-General Mohammed Barkindo have said they are optimistic a final deal will be reached.

The cartel had wanted to cut the group's production by 200,000 to 700,000 barrels a day, limiting total output to between 32.5 million and 33 million barrels a day. They fallen since, to three-week lows Friday, as key OPEC members sought exemption from the cuts. "It is not clear whether Iran will be given any possibility to restore pre-crisis volumes of oil exports", the expert explained.

Getting a commitment from the Russians would go a long way to improving sentiment, but many analysts are skeptical as Russia's commitment to support any reduction has been inconsistent in the past few weeks.

He added that a cut or production freeze was the best option to stabilize oil prices.

It hit its highest level since February 1 on Tuesday as traders saw a better than 78 percent chance of an interest rise hike by the Federal Reserve in December, according to CME Group's FedWatch tool. What's more, the resilience of shale production to lower prices again surprised market participants, leading to even lower prices in 2015. US refiner Valero reported this week that its quarterly net income has dropped by 50 percent versus year-ago levels.

The Macquarie Group puts the chances of OPEC reaching a credible crude output agreement that boosts oil prices at 60 percent, but closely followed investor Dennis Gartman thinks those odds are too generous.

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Analysts are expecting declines of up than 80 percent compared to a year ago, but are being optimistic that strength is returning to the market, with the possibility of a review in capital spending from some key players.

OPEC plans to cut output are not on the agenda of Kazakhstan.

In other oil-related news, ExxonMobil Corp.

The MSCI world equity index, which tracks shares in 46 countries, is down 0.08 percent. It is estmated by BP that every $1 decline in refinery margins equates to pretax earnings falling by $500 million per year.

Weak prices have also hit Italy's ENI, which reported a worse-than-expected quarterly loss on Friday.

In the interim period, USA shale oil drillers have become more efficient, meaning they have learned how to cut costs and make it more economically feasible for them to profitably pump oil than in the past.

In the short term, it will take a commitment from OPEC and non-OPEC to help bring much needed stability back to the market.

  • Darren Santiago