Oil prices drop as Iraq doesn't want to join OPEC production cut

Don't want to miss the best from Business Standard?

Oil prices fell early on Monday as Iraq said it wanted to be exempt from any deal by producer cartel OPEC to cut production to prop up the market, and as U.S. drillers stepped up work.

Brent crude futures were trading at $51.59 per barrel at 0133 GMT, down 19 cents, or 0.4 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude was down 22 cents, or 0.4 percent, at $50.63 a barrel.

Traders said the price falls followed comments from Iraq, which said it wanted to be exempt from a production cut by the Organization of the Petroleum Exporting Countries (OPEC) that the group plans to decide at its Nov. 30 meeting.

OPEC plans to reduce production to a range of 32.50 million to 33.0 million barrels per day (bpd), down from 33.39 million bpd in September.

That would be harder to achieve if Iraq, which is OPEC's second-biggest producer after Saudi Arabia, didn't participate.

Iraq said on Sunday that its oil production stood at 4.774 million bpd, with exports standing at 3.87 million bpd.

"We are not going back in any way, not by OPEC not by anybody else," said Falah al-Amri, the head of Iraq's State Oil Marketing Company.

"Comments by Iraq over the weekend that it may not join the OPEC agreement to cut production could see oil prices come under pressure in today's session," ANZ bank said on Monday.

Also pressuring the market, U.S. oil rigs rose by 11 last week, the first double-digit increase since August.

"We should see rig counts continue to increase in the wake of the recent price rally," Morgan Stanley said.

Ongoing strength in the dollar, which can crimp demand as it makes fuel purchases more expensive for countries using other currencies at home, also weighed on oil.

On the demand side, Japan's crude imports fell 4.6 percent in September from the same month a year earlier, to 3.27 million bpd, official data showed on Monday.

Despite Monday's lower prices, analysts said that oil markets, which have been dogged by two years of oversupply, might be rebalancing in terms of production and consumption.

"Statistical balances suggest that conditions have improved markedly. We suspect that the market is moving more quickly into balance than is generally recognised," Barclays bank said in a note to clients on Sunday.

"The market moved into a small deficit in Q3, will remain so in Q4 and then the deficit will expand significantly in 2017," it added.