Uncertainty in oil markets as OPEC decides future

Delegates at the Organization of Petroleum Exporting Countries (OPEC) are close to agreeing on a cut in output of 1.4 million barrels a day, as they sit for an official meeting in Vienna on Wednesday.

Saudi Arabia has reported that it is willing to accept an increase in production from Iran to around 3.9 million barrels a day, as other, smaller countries agree to a total decrease.

"I hope that we will have a deal but we will not know until the end of the month," Khalid Al Falih, Saudi Arabia's energy minister, told reporters.

"We're hoping for 600,000 (barrels per day decrease) from non-OPEC (countries) so that is going to be a substantial volume that will bring health back into the market."

Oil prices had fluctuated wildly before OPEC opened this morning, as investors remained uncertain about the prospect of a deal on freezing output.

Many countries, including most notably Saudi Arabia and Iran, who are engaged in a number of proxy wars across the Middle East, had reported apprehension on a deal.

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Oil prices increased five percent to $49.10 a barrel this morning after Saudi Arabia announced it was close to a deal on production – the prices having fallen four percent the previous evening.

Iranian and Iraqi ministers had expressed concerns over plans to cut oil production previously, however both countries gave messages of optimism to reporters outside the meeting Wednesday morning.

This optimism is expected to be related to Saudi Arabia's intention of willingness to compromise on Iran's demands.

"There will be an agreement today," one Iraqi delegate said.

Some economists are speculating on a "new normal" in the pricing of oil, which is expected to stabilise at around $50 a barrel.

Goldman Sachs had warned at the beginning of the month that a failure to make a deal at OPEC by comparison could result in low oil prices for the future.

"Weakening oil fundamentals warrant oil prices in the low US$40s/bbl in our view if OPEC is unable to deliver a convincing agreement," said Damien Courvalin, head of energy research at Goldman Sachs.