Oil slumped 4 per cent on Tuesday as OPEC's leading oil exporters struggled to agree on a deal to cut production to reduce global oversupply and boost prices, with Iran and Iraq at loggerheads with Saudi Arabia a day ahead of meeting.
Brent futures fell US$1.86, or 3.9 per cent, to settle at US$46.38 a barrel, while U.S. crude lost US$1.85, or 3.9 per cent, to US$45.23. That was the biggest daily percentage decline for Brent since September.
Those declines put both global benchmarks on track to fall for a second month in a row, with U.S. crude down around 3 per cent and Brent down almost 4 per cent.
Most analysts believe the Organization of the Petroleum Exporting Countries will cobble together a deal to cut some production at its meeting on Wednesday in Vienna, which starts at 1000 GMT.
But Iran and Iraq, OPEC's second- and third-largest producers, have resisted pressure from the group's de facto leader Saudi Arabia to curtail their oil output, making an agreement difficult.
"Iran and Iraq are refusing to cut...simply reaching the high end of the Algiers range will require greater cuts from other members, namely Saudi Arabia, which may be difficult politically," analysts at Morgan Stanley said in a report, noting the bank was still biased towards OPEC reaching a deal.
Documents prepared for the meeting propose OPEC cut production by 1.2 million barrels per day from October levels, an OPEC source familiar with the papers said, slightly more than the 1 million bpd the group discussed at a meeting in Algiers in September. OPEC produced around 33.82 million bpd in October.
Morgan Stanley said its base case was OPEC will announce a group quota for six months and ask non-OPEC countries like Russia to help. That could reduce OPEC production to about 33 million bpd and drive prices back into the $50 a barrel range, the bank said.
Russia confirmed on Tuesday it would not attend the OPEC gathering, but said a later meeting was possible.
Analysts at Macquarie Capital said they believe OPEC will come to a "last minute" agreement but noted the remaining issues are still the original issues - which countries will cut and by how much.
Macquarie predicted that failure to come to an agreement to cut output could push prices below $40 a barrel, while a successful deal would cause oil to rally into the low $50s.
Indonesian Energy Minister Ignasius Jonan said earlier Tuesday he was not sure OPEC would clinch a deal to limit oil output when it met.
"I don't know. The feeling today is mixed," he told reporters when asked about the prospects of a deal.
In Asia, OPEC's biggest customer region, oil importers made clear they would not be happy with an artificial supply cut that hikes prices, and that in case of a cut they would seek more supplies from outside OPEC.
In the United States, analysts polled by Reuters ahead of weekly inventory reports from the American Petroleum Institute (API) industry group later on Tuesday and the U.S. Energy Information Administration (EIA) on Wednesday estimated, on average, that crude stocks increased about 600,000 barrels in the week to Nov. 25.