Oil futures lost more steam in Asia on Tuesday as investors doubt the Organization of the Petroleum Exporting Countries will dole out any strong measures to enforce production caps at their ongoing meeting.
OPEC officials have said the purpose of the two-day gathering, which wraps Tuesday, is to discuss ways to improve compliance level to the deal, which went into effect in January in hopes of reducting historically high global stockpiles of crude.
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But various data have shown that some member states haven't abided by their assigned production level and small countries such as Ecuador have pushed back--arguing that capping output is hitting their economies.
"The reality is OPEC has no way of enforcing the production caps," said Gao Jian, an analyst at SCI International. "That has been the problem of the cartel for many years now." But he noted if Saudi Arabia makes comments regarding a deeper commitment to export reductions, the market may see a fresh round of buying.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in September were recently down 0.4% at $49.21 a barrel in the Globex electronic session. October Brent crude on London's ICE Futures also dropped 0.4%, to $52.18.
Another major topic expected to be discussed at the meeting was the inclusion of Libya into the output-cap effort. The African supplier was given a pass when the deal was first forged last fall considering its oil facilities had been under militant attacks for months, sharply curtailing production. But with daily output back to 1 million barrels, other OPEC members are lobbying for Libya to bridle its production as well.
In fact, prices briefly fell sharply Monday on news that Libya's largest oil field resumed operation. But some analysts say that decline was overblown because the resumption only gets the nation's production back to prior levels. Many think Libya has little room to expand output further due to investment and infrastructure constraints.
"This reactionary type of trading shows the continued nervousness of day traders ever-eager to sell into the current market," said Stuart Ive, a client manager at OM Financial.
Oil bulls are also banking on seasonal demand gains in coming months to soak up additional barrels coming out of Libya and Nigeria, another OPEC member which only recently asked to tame down its production to be in line with the pact.
"We continue to see stronger third-quarter seasonal demand as more than enough to offset recent production increases and still draw down inventories to at least some degree," said Tim Evans of Citi Futures.
Among refined products, Nymex September diesel was recently down 0.3% at $1.6354 a gallon, reformulated gasoline blendstock fell 0.3% to $1.6251 and August ICE gasoil rose 0.8% to $482.50 per metric ton.
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(END) Dow Jones Newswires
August 07, 2017 23:18 ET (03:18 GMT)