Oil dipped on Monday as traders remained cautious ahead of an OPEC meeting later this week and as a widely expected U.S. interest rate hike strengthened the dollar.
Oil prices are heading for declines of as much as 10 percent this month, with a supply glut showing no signs of easing and a firmer U.S. dollar making greenback-denominated contracts more expensive for holders of other currencies.
The dollar edged up to a fresh 8-1/2-month high against a basket of major currencies on Monday. [USD/]
Benchmark Brent for January was down 25 cents, or about half a percent, at $44.61 a barrel at 0728 GMT. U.S. crude dropped 10 cents to $41.61.
While most analysts do not expect OPEC to cut production at an important policy meeting on Dec.4, they are mindful that Saudi Arabia could be inching towards the idea of working on price support measures with other oil producers.
OPEC and Russia could make “some sort of co-ordinated attempt to reduce production”, said Jonathan Barratt, chief investment officer at Sydney’s Ayers Alliance.
“The glut continues, but I do feel that it could be reversed quite quickly given the change in interest rates in the United States, which would indicate more demand.”
But OPEC officials have called into question an upbeat forecast from the group’s researchers, with some sceptical there will be a quick easing of the supply glut in 2016.
The research team expects higher demand for OPEC oil next year as supply from producers such as the United States declines, potentially reducing the glut, with world oil demand seen rising by 1.25 million barrels a day.
Oil prices have more than halved since OPEC made a historic decision last year to defend market share by refusing to prop up prices through supply cuts.
The shift was led by Saudi Arabia and supported by other Gulf OPEC members, but doubts about the policy among less wealthy members are growing.
Highly leveraged OPEC members will try to get OPEC to act, although the group is unlikely to change its policy, Barratt said.
The OPEC meeting should also include discussions about new supply from Iran, according to analysts at Morgan Stanley.
Iran, once the second-largest producer in OPEC after Saudi Arabia, hopes to raise its crude exports by as much as 1 million barrels per day within months of the easing of sanctions aimed at its nuclear programme.
The country unveiled an upgraded oil contract last week as part of a broader effort to attract Western investors.
Traders will also be closely watching the U.S. non-farm payrolls report due on Friday. A strong jobs report could seal the case for a rate hike at the U.S. Federal Reserve’s Dec. 15-16 meeting.
The data will cause “huge volatility” in the dollar, analysts at Singapore-based brokerage Phillip Futures Pte Ltd
wrote in a note.
“This should in turn cause some volatility to oil prices depending on how the USD strength plays out.”
Source: Reuters
