Oil reverses gains on signs Iran will not back output freeze
Oil prices fell, reversing gains earlier in the session, on signs that Iran will not join in a deal between Saudi Arabia, Russia and other producers to freeze oil output at January levels, keeping the current oversupply in place.
Brent crude LCOc1 was down 31 cents at $31.87 a barrel by 0739 GMT, after settling down $1.21 in the previous session. It had climbed to $32.83 a barrel in early trade on Wednesday.
US crude CLc1 fell 25 cents to $28.79 a barrel, after trading for much of the Asian session above $29 a barrel. It ended the last session down 40 cents.
Top oil producers Russia and Saudi Arabia on Tuesday agreed to limit oil production at January levels contingent on Iran, the Organization of Petroleum Exporting Countries' fourth-largest producer, agreeing to join the freeze. Iran has pledged to return its output to levels prior to sanctions imposed in 2011.
Iran will continue to increase oil output until it reached its pre-sanctions production level, Mehdi Asali, Iran's OPEC envoy told Iran's Shargh daily on Wednesday. Asali called an Iranian freeze illogical and said the current drop in prices was caused by other producers lifting output while Iran was under sanctions.
Venezuelan Oil Minister Eulogio del Pino will meet officials from Iran and Iraq in Tehran on Wednesday to discuss the oil output freeze deal negotiated by Saudi Arabia and Russia, state oil company PDVSA said in a statement on Tuesday.
Iraq, Qatar and Venezuela said they would freeze output at January levels provided a deal could be agreed.
Oil prices initially climbed on Wednesday on investor optimism the deal could lead to production cuts in the longer term, but turned negative later.
"There was some technical buying, but at the end of the day the market is still looking towards Iran," Daniel Ang, an analyst at Singapore's Phillip Futures, told Reuters.
It is unlikely Iran would freeze output at current levels but rather cap the increase in production at lower levels than planned, Ang said.
Moves to freeze output at January levels will make little difference to the overall supply-demand balance this year and will not be enough to clear the 600,000 barrels per day surplus projected for the year, analysts FGE said in a note on Wednesday.
"It could pave the wave for further action to be taken should the likes of Saudi Arabia, other OPEC members and Russia deem it necessary," FGE said.
Investors are also eyeing US oil inventory data later on Wednesday for further direction on prices.
US crude stocks likely rose by 3.9 million barrels to 505.9 million barrels in the week to Feb. 12, according to a Reuters poll of analysts on Tuesday.
Weekly inventory reports from industry group the American Petroleum Institute (API) and the US Department of Energy's Energy Information Administration (EIA) will be released on Wednesday and Thursday respectively, a day later than usual because of a public holiday on Monday.