Oil drops in volatile session as OPEC gathers

By Vladimir Soldatkin

LONDON (Reuters) - Oil prices fell in volatile trade on Wednesday as investors adjusted positions ahead of a key meeting of OPEC oil producers.

Core Gulf members of the Organization of the Petroleum Exporting Countries, which pumps over a third of the world's oil, have a consensus that they will maintain the group's oil output at its meeting on Friday, a senior Gulf OPEC source told Reuters.

"There is consensus among Gulf OPEC countries, and others, to keep the (production) ceiling unchanged," the OPEC delegate told Reuters in Vienna. "Nobody wants to rock the boat. The meeting is expected to be smooth sailing."

Carsten Fritsch, senior commodity analyst at Commerzbank, said oil was hit by talk among some traders that OPEC might raise its production ceiling.

"It's a minor chance, but of course it's not zero," Fritsch said, adding a rising dollar was also a negative factor for oil.

Brent crude oil for July dropped $1.75 a barrel to a low of $63.74 before recovering to around $64.80 by 1415 GMT. U.S. crude was 50 cents lower at $60.76 a barrel.

"It's largely volatility ahead of the OPEC meeting, with everyone accepting there won't be any cuts," said Amrita Sen of Energy Aspects.

Investors awaited a U.S. government report on oil inventories due at 1430 GMT.

A U.S. industry report on Tuesday said U.S. oil stocks built last week, confounding market expectations for a draw.

Brent collapsed last year, falling to almost $45 a barrel in January from above $115 last June, squeezing many oil producers in countries outside OPEC, including U.S. shale drillers.

Comments by OPEC ministers in Vienna this week have reinforced a view among investors that the big Middle East oil producers will carry on pumping oil nearly flat-out for many months to come, content that lower prices will knock out some of their competitors.

Saudi Arabian Oil Minister Ali al-Naimi told a conference organised by OPEC in Vienna on Wednesday that the group was "currently meeting global demand and I don't see this changing".

"In terms of the long-term energy outlook, the future looks very positive," the veteran Saudi minister said.

OPEC is pumping around 2 million barrels per day (bpd) more than needed at the moment, helping fill oil inventories worldwide and keeping the price of oil for delivery now at a discount to futures prices.

(Additional reporting by Henning Gloystein in Singapore; Editing by Pravin Char, Elaine Hardcastle and Christopher Johnson)