Oil extends declines before Opec meeting on output-cut extension

Oil extended its decline below $58 a barrel before Opec and its allies meet this week to discuss prolonging their output cuts beyond March.

Futures dropped as much as 1% in New York after losing 1.4% on Monday. Uncertainty over the outcome of Thursday’s meeting is creating the risk of a slide in prices, which have gained on assumptions that the curbs will be prolonged for nine months, according to Goldman Sachs Group.  

The Organisation of the Petroleum Exporting Countries (Opec) backs such an extension but is still waiting for commitments from Russia, according to people familiar with the matter.

Oil closed at the highest level in more than two years on Friday on signs the Organization of Petroleum Exporting Countries and its partners will prolong cuts aimed at shrinking a glut.

Prices, time spreads and hedge-fund positioning all reflect a high probability the group will follow a Saudi proposal to extend the pact to the end of 2018, Goldman said. Yet Saudi Energy Minister Khalid Al-Falih said on Tuesday that it’s too early to talk about the duration.

"Optimism has driven prices up quite a bit and now we’re seeing some cautiousness being priced in ahead of Opec," said Hans Van Cleef, senior energy economist at ABN Amro.

"Although it's pretty certain that the agreement will be extended, it’s more about the details and we know that Russia would prefer to wait a bit longer."

West Texas Intermediate for January delivery was at $57.57 a barrel on the New York Mercantile Exchange, down 54 cents, at 10:35am London time. Total volume traded was about 11% above the 100-day average. Prices fell 84 cents to $58.11 on Monday.

Brent for January settlement slid 53 cents to $63.31 a barrel on the London-based ICE Futures Europe exchange after closing down 2 cents on Monday. The global benchmark crude traded at a premium of $5.74 to WTI.

The path toward market stability "has seen several bumps along the way, and we have suffered occasional setbacks, but our determination and hard work are paying off," Opec Secretary-General Mohammad Barkindo said on Monday.

The oil market is steadily returning to balance, he said.

Oil-market news:

US crude stockpiles probably fell by 3.5 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report on Wednesday.

Canadian heavy-crude prices strengthened for the first time in two weeks after TransCanada said its Keystone pipeline will resume service on Tuesday, allaying concerns about rising supplies in Alberta.