Oil prices ticked sharply higher Monday after Iraqi and Iranian officials offered hope that OPEC will deliver a promised production cut at a meeting next week in Vienna.
West Texas Intermediate futures for delivery in December rose 1% to $46.15, while Europe's benchmark Brent crude futures for delivery in January rose 1.1% to $46.39. Monday's gains take WTI's increase to just over 6.5% over the past week, while Brent has risen by a similar amount.
Iran's oil minister Bijan Zangeneh said it was "highly probable" that OPEC members will reach agreement on the production cuts, according to quotes published over the weekend by Iran's state-backed oil news service Shana. On Monday, Iraq's Oil Ministry said its nation's "demands should not be perceived as an obstacle to reaching a new agreement."
OPEC members have been holding informal meetings ahead of their decisive get together on November 30, when they are due to agree the terms of a production cut agreed in principal in Algiers on Sept. 28. The 14-nation oil cartel has promised to reduce output to between 32.5 million and 33 million barrels of oil per day, a target that will require the removal of about 1.5 million barrels a day, or about 5% of current production.
Iran had previously insisted it should be allowed to increase output to the level it was at prior to the imposition of sanctions. That position appears to have softened, partly due to a rapid increase in production, with reports suggesting Iran will accept a production cap, though not a reduction. Iraq has claimed that it should be exempt from any deal as it needs cash to fund its battle against Isis.
The possibility that neither Iraq, which is OPEC's No.2 producer, or Iran, which ranks No.3, will cut production has raised fears that Saudi Arabia will abandon a deal that will fall most heavily on its output.
"We expect OPEC to agree to a face-saving statement," noted Barclays analysts. The bank also highlighted the problems inherent in OPEC's efforts to increase prices, warning that oil prices beyond $50 would result in increased output from U.S. shale oil producers.
Oil prices have fallen more than 50% since 2014 after Saudi Arabia opened its spigots, flooding the market with excess oil in an effort to protect market share from a resurgent Iran and U.S. shale oil producers.
The International Energy Agency warned earlier this month that failure to agree a production cut will leave the oil market in surplus for all of 2017. Analysts, including Goldman Sachs, have also noted OPEC members past failures to abide by production quotas, warning that even if a deal is agreed it may have little long-term effect on the oil price.