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Oil moves lower as Vienna agreement remains fleeting

New York — The oil complex settled lower across the board Thursday as prices vacillatedwith the latest jockeying out of Vienna where OPEC and non-OPECrepresentatives have begun to discuss potential output increases.

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OPEC and its 10 non-OPEC partners are in talks in Vienna to ease theirsupply-cut agreement in response to supply tightness caused by Venezuela'scollapsing economy, the US reimposing sanctions on Iran in November andother factors. Ministers have not agreed how any production increase wouldbe divvied up between countries.

Prompt August ICE Brent settled $1.69 lower at $73.05/b, while NYMEXAugust WTI finished 17 cents lower at $65.54/b. WTI held in positiveterritory for much of the day until dipping into the red just ahead of thesettle. The combination took the prompt Brent/WTI spread on ICE to below$8/b for the first time since late-May.

NYMEX refined products were lower as well, with July ULSD settling 3.7cents lower at $2.0701/gal. July RBOB fell 1.12 cents to settle at$2.0123/gal. Overnight, RBOB fell as low as $1.9975/gal, dragging the promptcontract below $2/b for the first time since April.

Mid-afternoon trading suggested conciliatory measures on the part ofIran were the order of the day, with a source close to the talks in Viennasaying Iran may agree to an increase in OPEC quotas if the organizationofficially condemns US sanctions that target oil production.

But shortly after the NYMEX settle, S&P Global Platts reported Iranianoil minister Bijan Zanganeh saying Thursday talks did not go well, and thathe doubts OPEC and its allies can reach agreement to change their productioncut deal.

This latest development suggests output levels would remain unchanged.But S&P Global Platts Analytics has said OPEC is likely to agree torelatively modest increases in production quota limits.

"We see a 600,000 b/d agreed increase," Platts Analytics said in anote. "Not all countries will be able to increase production (they arealready producing at capacity). But Saudi Arabia will likely make up forshortfalls in supply."

Saudi energy minister Khalid al-Falih had said earlier Thursday thatOPEC would not be discussing sanctions Friday, when it meets to decide onthe future of its 1.8 million b/d production cut agreement with 10 non-OPECallies led by Russia.

If a deal is to be struck Friday, however, Venezuela would beparticularly at risk, with oil minister Manuel Quevedo saying Thursday thatUS sanctions are bringing state-owned oil company PDVSA to a standstill.

"These sanctions are very strong, the sanctions are practicallyimmobilizing PDVSA," Quevedo told reporters on the sidelines of the OPECInternational Seminar ahead of Friday's OPEC meeting. "They are trying toasphyxiate PDVSA."

The oil market appears to be shrugging off worsening conflict in Libya,however. The Libyan National Army militia was struggling to restore orderafter it recaptured the Ras Lanuf oil terminal, as fighting between rivalgroups led to more damage at storage tanks, sources said.

--James Bambino,

--Staff reports,

--Edited by Derek Sands,