Oil prices eased on Tuesday, weighed down by uncertainty over the outcome of an OPEC meeting this week at which an extension to its price-supporting oil output cuts will be discussed.
Prices also briefly came under pressure after a fire broke out at Exxon Mobil Corp’s 362,300 barrel-per-day (bpd) Beaumont, Texas, refinery. Firefighters have since put out the blaze but the small crude unit is shut, sources said.
Brent crude oil ended the session down 23 cents, or 0.4 percent, at $63.61 a barrel. U.S. crude settled 12 cents, or 0.2 percent lower at $57.99, after falling 1.4 percent in the previous session.
Prices extended losses after data from industry group the American Petroleum Institute showed crude inventories rose by 1.8 million barrels in the week to Nov. 24 to 457.3 million, compared with analysts’ expectations for a decrease of 2.3 million barrels.
The Organization of the Petroleum Exporting Countries is heading for tougher-than-expected policy talks on Thursday. Its leader Saudi Arabia is pushing to extend output cuts by nine months while non-member Russia is hesitating due to worries that the market could overheat.
Oil output from Russia’s Far Eastern Sakhalin-1 project is set to rise by about a quarter from January, sources with knowledge of the plan told Reuters, signaling Moscow may find it hard to comply with output cuts in tandem with OPEC for the whole of next year.
A joint OPEC and non-OPEC technical committee recommended extending the deal until the end of next year, with an option to review it in June, two sources with knowledge of the matter said.
Iraq’s oil minister said he supports an extension of the oil cuts while his counterpart from Kuwait said the group had not yet agreed on the duration of a possible extension.
“We believe that the outcome of this meeting is much more uncertain than usual,” Goldman Sachs analysts said.
“We view risks to oil prices as skewed to the downside this week as we believe that current prices, time spreads and positioning already reflect a high probability of a nine-month extension,” the Goldman analysts said.
The market had expected OPEC to extend the cuts of 1.8 million bpd beyond March until the end of 2018 to clear the overhang in global supplies, but this is now less certain.
Citigroup’s head of commodity research expects OPEC to extend the deal until the middle of next year, rather than the end. But anything less than an extension until the end of next year will cause a sell-off in the price, Citi’s Ed Morse added.
Standard Chartered echoed that sentiment, saying anything beyond a plain vanilla rollover is likely to confuse the oil market.
“We think that the oil market has already almost fully priced in an extension of the OPEC and non-OPEC output deal to the end of 2018 … We think OPEC should err in the direction of over-tightening the oil market, and pull back later if needed.”
Consultancy Wood Mackenzie projected that if the production cut agreement ends in March 2018, there would be an estimated 2.4 million bpd year-on-year increase in world oil supply for 2018.
U.S. crude touched $59.05 on Friday, its highest since mid-2015, fueled by the outage of the Keystone pipeline, one of Canada’s main crude export routes to the United States.
But TransCanada Corp said on Tuesday it restarted operations on the 590,000-bpd pipeline at reduced pressure. The company has no timeline on when U.S. regulators will allow it to return to full capacity, a TransCanada spokesman said.
Traders said they expect reduced flows from Keystone into the U.S. futures trading hub of Cushing, Oklahoma to keep seasonal inventory builds in check.
API data showed crude stocks at the Cushing, Oklahoma, delivery hub fell by 3.2 million barrels.