Crude oil prices lost ground early Tuesday as traders took profit following the overnight surge, underscoring the growing mixed views that key oil producers could agree on a production freeze this Sunday. The U.S. oil benchmark settled above $40 a barrel for the first time in three weekend the global Brent benchmark touched a four-month high Monday, thanks to a weaker dollar and higher anticipation that major oil players, such as Russia and Saudi Arabia, would reach a coordinated production freeze to revive prices. Although U.S. oil (+0.32%) held on by staying above the $40 mark, it lost 30 cents at $40.23 on the New York Mercantile Exchange in the Globex electronic session, while the Brent June contract (+0.42%) was 15 cents, or (0.35%), lower at $42.68 a barrel on the ICE Futures Europe exchange.
For nearly two months, oil prices have been volatile as the market tried to gauge the likelihood of a concerted effort by the oil majors to tighten supply. The initial mention of a meeting back in February stoked a buying spree but prices dove when Saudi Arabia, one of the original initiators of the pact, later showed reluctance to participate in the agreement unless Iran pledges to do the same.
However, Tehran has repeatedly showed zero interest in a production freeze at the current level, saying it would keep pumping until productions reaches the pre-sanction level of around 4 million barrels a day.
Goldman Sachs forecasts the Sunday meeting won’t yield any “bullish surprise” and said arresting output at the current level could be “self-defeating” because any moves to push prices up would entice more producers to turn the taps wider, introducing more barrels into the market.
Analysts at Societe Generale estimate a 50% probability that the meeting would result in a general production freeze.
“A freeze excluding Iran is all about market psychology. It will have little to no impact on real crude production. However, the impact of market psychology could still be quite large,” said in an analysts note.
For this week, market watchers will be taking cues from the weekly U.S. crude inventories and production data scheduled for release on Wednesday. In a survey of analysts conducted by pricing agency Platts, U.S. crude stockpiles likely added 1 million barrels in the week ended April 8, driven by stronger imports due to stronger refining margin and sagging U.S. crude output. U.S. gasoline stocks is expected to have contracted by 1.9 million barrels in the same period. Lingering concerns about economic conditions overseas have prevented the Fed from further tightening monetary policy, so far. For now, that seems to be good news for those hoping to see oil ramp higher and bad news for dollar bulls.