Oil dips ahead of OPEC meeting, Greek polls
Oil prices slipped under $97 on Thursday with investors and traders reluctant to add to positions ahead of a meeting later in the day of oil producer group OPEC and Greek elections at the weekend.
Traders are looking for any change in OPEC's output policy given that some view the market as over-supplied, while the Greek election result should deliver some clarity as to whether Greece will stay in the euro.
Brent crude was down 19 cents to $96.94 a barrel at 0642 EDT. U.S. crude was up 16 cents at $82.79, after settling at its lowest level since October 6.
Analysts said the oil market was essentially in "wait and see" mode, but lower equity markets, pessimism about Europe and the expectation OPEC will keep its production target in place were all weighing on oil prices.
When it last met in December, the Organization of the Petroleum Exporting Countries (OPEC) agreed to pump 30 million barrels per day (bpd) but the target was never adhered to and production has risen to almost 32 million bpd, a four-year high, despite sanctions against Iranian crude exports.
Oil prices have tumbled over the last month with many traders viewing the market as over-supplied given the poor economic outlook for the euro zone, slowdowns in the United States and China, and declines in demand for oil products.
Top oil exporter Saudi Arabia is now under pressure from fellow OPEC producers to cut oil output. Price hawks in OPEC are fretting that slower economic growth will send crude, already off $30 since March, sliding further.
"We think that given the economic situation, above all in Europe, there is a serious threat that prices might fall drastically and so our policy is to defend the production ceiling agreed in December," said Venezuelan Oil Minister Rafael Ramirez ahead of the OPEC meeting in Vienna.
Riyadh's preferred oil price is $100 a barrel, a level it feels permits oil investment without hurting economic growth, while most in OPEC want to defend $100 as a price floor.
Analysts expect the output ceiling to remain unchanged. "If they agree to raise the ceiling it will be negative for prices and if they agree to cut production it will be supportive, but this is rather unlikely given the latest comments," said Carsten Fritsch, an oil analyst at Commerzbank in Frankfurt.
"No one is expecting any fireworks," agreed Ole Hansen, senior commodity strategist at Saxo Bank. "Any disagreements tend to be kept behind closed doors and it will probably result in an unchanged ceiling this afternoon."
Traders are also squaring their books ahead of the Greek election this weekend.
"The oil market is on a knife edge," said Hansen. "Traders are not really willing to add any new exposure ahead of that because there could be some silly moves come Sunday night."
If the election result favors parties opposed to the austerity terms of a Greek bailout, this is expected to increase the likelihood of Greece being thrown out of the euro zone, or choosing to leave.
This could worsen the recession in other vulnerable European Union countries such as Spain and Italy, and weigh on Europe's key trading partners, hurting oil demand.
Analysts at Credit Suisse see Brent crude oil prices falling by almost 50 percent to $50 a barrel within the next three months if the euro zone crisis escalates.
Ratings agency Moody's has downgraded Spanish sovereign debt to one notch above junk and put it on review for further downgrade, citing the requirement for outside support, the limited financial market access and the economy's continued weakness.