Oil prices swung from one-month highs to session lows in volatile trading on Monday as investors awaited a signal on output policy from OPEC's two biggest producers.
U.S. West Texas Intermediate crude jumped to $51.06 a barrel in early trading, its highest level since April 19, on signs that consensus among OPEC members is forming around extending coordinated production curbs. But WTI futures gave up gains after sources told Dow Jones Saudi Arabia and Iraq remain at an impasse over the length of that extension.
De facto OPEC boss Saudi Arabia favors a nine-month extension, while the Iraqis prefer to roll over current policy only for the remainder of 2017, the sources said. Saudi Energy Minister Khalid al-Falih flew to Baghdad to hold discussions with his Iraqi counterpart, Jabar al-Luaibi, on Monday.
Falih said the decision to extend output cuts would wait until an OPEC meeting on Thursday, but he said he does not expect any objection from OPEC members to a nine-month extension, Reuters reported around 12 p.m. ET.
WTI were last trading near session lows at $50.53 a barrel, still positive on the day.
"Going to Iraq to shore up support and push not just for six months but to push for nine months is getting the attention of the market," said John Kilduff, founding partner at energy hedge fund Again Capital.
OPEC Secretary General Mohammed Barkindo said OPEC members agree an extension is necessary, but will not set a time frame until their meeting on Thursday, Dow Jones reported.
Kilduff said he would be watching to see how elusive the Iraqi oil minister is during a scheduled press conference on Monday. "There are rumors that they want out of the deal. They want an exemption like the Iranians," he said.
Under OPEC's deal to remove 1.2 million barrels a day from the market in the first six months of this year, Iran is allowed to grow production to a certain level as it rebuilds its industry following years of crippling sanctions. Nigeria and Libya are entirely exempt from cutting as they restore production sidelined by internal conflicts.
Iraq has floated the idea that it, too, should be exempt, saying it needs oil revenue to fund its campaign against the Islamic State, the militant group that Baghdad is waging a pitched battle against in the Iraqi city of Mosul. Eventually, Iraq agreed to the second deepest cuts under the OPEC accord in November.
"I think this is the big holdout country because Oil Minister Luaibi didn't really want to do the deal in November," Helima Croft, global head of commodity strategy at RBC Capital Markets, told CNBC Europe on Monday.
"He was calling back to his prime minister saying we can't take the second largest cut in OPEC. He's complained about the deal ever since, saying Iraq should've been exempt in the fist place."
Luaibi on Monday said Iraq is ready to meet future demand growth. In March, he said Iraq's output could grow to 5 million barrels a day in the second half of 2017, with capacity to export much more.
