Oil prices fell on Friday and held near their lowest levels in a week on expectations that OPEC will maintain its production target at its meeting later in the day.
The biannual meeting of the Organization of the Petroleum Exporting Countries comes at a pivotal time for the oil market. Prices have shot up by more than 30% in the past two months on expectations that the oversupplied global market will come into balance later in the year. But the rally has sputtered recently and prices have wavered between gains and losses in the past two weeks.
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While most market watchers expect OPEC will stick to its decision not to cut output, the meeting will be closely watched for clues about the organization's next moves. When OPEC last met in November 2014, the oil cartel took an unexpected decision to maintain its production target at 30 million barrels a day despite the global oil glut and the rout in prices.
On Friday, July-dated Brent crude, the global price benchmark, fell 0.3% to $61.85 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures for July were recently trading down 0.6% at $57.63 a barrel.
"With the group's output steadily ramping to reach 31 [million barrels a day] May the suggestion is that OPEC, led by the Gulf States, is increasingly comfortably defending market share and will remain committed to the policy decision taken last November," analysts at Deutsche Bank said in a report.
Still, there is a slight chance for a surprise, some observers say, as the oil cartel could actually increase its output target rather than cut.
Several oil ministers, before heading into Friday's meeting in Vienna, said they would discuss raising the ceiling. OPEC is already producing about a million barrels a day above target as Iraq and Saudi Arabia, the world's largest exporter of crude oil, boost production.
"Everything will be discussed," Iraq's oil minister Adel Abdul-Mehdi said.
Also on OPEC's agenda will be Iran's possible return to the oil market if international sanctions against the country are lifted this year. Saudi Arabia's oil minister Ali al-Naimi said on Friday that Iran and other OPEC members have the sovereign right to produce what they want.
"You know that production is a sovereign right...I would say they [Iran] are free to do what they want...you know it is a free market. Everyone is entitled to produce how much he wants," he said.
OPEC is also expected to discuss Indonesia's request to reactivate its membership after it expired in 2009, as the country had become a net oil importer.
While all eyes are on the meeting, markets on Friday are also awaiting the latest oil drilling rig count, to be published by Baker Hughes Inc. later in the day. A proxy for activity in the industry, the count is down 60% since October but the rate of decline has slowed in recent weeks as prices have rebounded from their lows.
Nymex reformulated gasoline blendstock for July--the benchmark gasoline contract--rose 0.3% to $1.9855 a gallon, while ICE gas oil for June changed hands at $566.25 a metric ton, down $0.75 from Thursday's settlement.