By Kevin Baxter and Stephanie Yang

Oil prices fell Tuesday, with market participants unconvinced that OPEC will reach a deal to cut production at the Wednesday meeting.

Anticipation of action to limit output has boosted the crude market in recent weeks. But comments from officials ahead of the meeting sowed doubts over the Organization of the Petroleum Exporting Countries' ability to come to an agreement.

Light, sweet crude futures for January delivery declined $1.66, or 3.5% to $45.42 a barrel on the New York Mercantile Exchange, on track to close at a two-week low. Brent, the global benchmark, was recently down $1.73, or 3.6%, at $46.51 a barrel.

"With member delegations already gathered in Vienna ahead of tomorrow's formal meeting, it is increasingly clear that key divisions still remain, " said Robbie Fraser, commodity analyst at Schneider Electric, in a Tuesday note.

Oil ministers from Indonesia and Iran expressed some reluctance to commit to a production cut Tuesday, sparking concerns over a contentious meeting and a potential deadlock. Indonesia's oil minister said his country hadn't decided yet whether to join production cuts and that he had "a mixed feeling" about the gathering's outcome.

Iran's oil minister said he intends to follow production plans previously set that would make the country exempt from output cuts. Germany's Commerzbank said the main hurdle for the meeting will be Saudi Arabia's insistence that Iran cap production at 3.7 million barrels a day. Tehran is insisting on a cap of around 3.97 million barrels a day.

Goldman Sachs analysts said the oil market is reflecting at 30% probability that the cartel will come to a deal on Wednesday.

Sentiment has reversed substantially compared with a week ago, creating extreme volatility in the market, said Donald Morton, senior vice president at Herbert J. Sims Co., who runs an energy-trading desk.

"Wall Street has completely flip flopped," Mr. Morton said. "I've never seen so many changes in opinion in such a short period of time."

In September, OPEC agreed on targets that would have translated into production cuts of 200,000 to 700,000 barrels a day. Analysts say if the Wednesday meeting ends inconclusively, oil prices could fall to as low as $35 a barrel.

Most observers agree Saudi Arabia does want a swift resolution, but Iran will likely wait until the formal meeting is under way before the country's negotiators show their hand.

Olivier Jakob, at Switzerland-based Petromatrix, believes the delay is helping Russia avoid agreeing to any production freeze before the formal meeting gets under way.

"Saudi Arabia would probably have liked an early agreement before the meeting in order to present a special combo package of an OPEC cut and a freeze from Russia," Mr. Jakob said. "It is interesting to note that the Russian and the Iranian president made public that they held a phone conversation yesterday to discuss, among other things, the OPEC meeting."

One of the key hurdles for the production accord is Russia, which isn't a member of OPEC. Russia has indicated it is only interested in holding production at 11.2 million barrels a day. A freeze, it said, is essentially a reduction because it planned to increase output next year.

OPEC will also struggle to nail down production quotas for member nations as several countries -- such as Nigeria and Libya -- have requested exemptions because theiroil production and exports have been hurt by militant attacks. In addition, OPEC doesn't have the authority to make members comply with their production assignments.

If OPEC decides to abandon its pledge to cut output, oil prices will be hit hard in the short term. However, Bjarne Schieldrop, from SEB bank, said the market was likely to shrug off the setback and oil will likely trade back to around $48 a barrel by the end of 2016.

"Higher oil prices means non-OPEC producers will be more encouraged to drill for more oil, which will increase global supply and prices will be depressed again," said Gao Jian, an energy analyst at SCI International.

In the U.S., where many oil producers were forced out of the market when prices dropped below $40 a barrel, there are signs of resilience. The latest forecasts from the U.S. Energy Department show domestic crude production is likely to hit 8.7 million barrels a day in 2017, which is 100,000 barrels a day higher than the previous estimate.

Production elsewhere is also climbing. North Sea producers, who have been troubled by rising costs and high taxes, recently increased output to a three-year high. That shows that any OPEC agreement would have a limited impact on the global crude glut, said Hamza Khan, head of commodity strategy at ING Bank.

"The whole concept is so silly," Mr. Khan added. "If one part of the world cuts, supply will come online in other parts of the world...and it will come on very quickly."

Market players will also focus on the weekly U.S. inventory forecast from the American Petroleum Institute Tuesday, ahead of Wednesday's official data from the Energy Information Administration. With OPEC hogging the headlines, though, trading around the U.S. statements is likely to be less active this week.

Gasoline futures were down 2.4% at $1.3783 a gallon, and diesel futures were down 2.9% at $1.4680 a gallon.

Jenny W. Hsu and Timothy Puko contributed to this article.

Write to Kevin Baxter at and Stephanie Yang at

(END) Dow Jones Newswires

November 29, 2016 11:12 ET (16:12 GMT)

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