Oil fell to a two-week low as an OPEC deal to curb output appeared in jeopardy after Iran and Saudi Arabia failed to bridge differences.

Futures tumbled 3.9% after Iranian Oil Minister Bijan Namdar Zanganeh told reporters in Vienna his nation won’t reduce production. A 10-hour technical meeting focusing on how to share the burden of cuts failed to resolve differences. Saudi Arabia is ready to reject an agreement unless all OPEC members, excluding Libya and Nigeria, participate, said people familiar with the kingdom’s current position at the talks.

“This is going to go right down to the wire,” Mike Wittner, head of oil-market research at Societe Generale SA in New York, said by telephone. “The Saudis have been remarkably consistent in what they expect from the Iranians over the last two months.”

Goldman Sachs Group Inc. said the market is pricing in a 30% chance of a deal. While an accord could push prices up about $5 a barrel, according to Morgan Stanley, a failure could drive it down into the $20s, said Amrita Sen, chief oil analyst at Energy Aspects Ltd. Saudi Arabia’s Energy Minister Khalid Al-Falih, who has led the push for OPEC to cut production for the first time in eight years, changed his tone on Sunday, saying a deal might not be needed.

West Texas Intermediate for January delivery dropped $1.85 to $45.23 a barrel on the New York Mercantile Exchange. It’s the lowest settlement since Nov. 14. Total volume traded was about 17% above the 100-day average at 2:41 a.m.

Brent for January settlement, which expires Wednesday, fell $1.86, or 3.9%, to $46.38 a barrel on the London-based ICE Futures Europe exchange. It was also the lowest close since Nov. 14. The global benchmark ended the session at a $1.15 premium to WTI for the same month. The more-active February futures slipped $1.89 to $47.32 a barrel.

Increasing Volatility

The options market is also looking increasingly bearish. The so-called put-call skew — a measure of the difference in demand for options used to protect against price drops compared with those that insure the buyer against gains — closed on Monday with the most bearish reading in five months for Brent.

Brent may swing $6 a barrel on Wednesday, based on implied volatility for options contracts, Goldman analysts including Jeff Currie said in a report.

Oil market volatility, as measured by the Chicago Board Options Exchange Crude Oil Volatility Index, climbed the highest in almost nine months Tuesday.

Energy shares were the worst performers on the Standard & Poor’s 500 Index. The S&P Oil & Gas Exploration and Production Select Industry index dropped as much as 3.3%.

“Unless there’s a material concession from Iran there’s no way Saudi Arabia is going to agree to reduce production,” Stephen Schork, president of the Schork Group Inc., a consulting company in Villanova, Pennsylvania, said by telephone. “If prices jumped above $50, U.S. barrels would come back to the market. They would also lose market share to the Iranians and Russians in the Far East.”

Dueling Proposals

A pact proposed Monday would trim output by 1.2 million barrels a day from October levels, though it remains unclear whether the idea has the support needed for approval, a delegate said. 

Iran, OPEC’s third-biggest producer, proposed that it freeze production at 3.975 million barrels a day, according to two delegates with knowledge of the talks. That is 7.2% higher than Saudi Arabia’s counter-proposal of 3.707 million barrels a day.

“The market’s been hit by a cocktail of negative developments,”  Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by telephone. “It looks like only three countries, Saudi Arabia, Kuwait and the UAE, are willing to make real cuts, which isn’t acceptable to the Saudis.”

As OPEC tries to resolve its own differences, the group is also asking other big producers, including Russia, to cut output by as much as 600,000 barrels a day. Russian resistance to curbing supply was a factor that forced the cancellation of planned talks on Monday with non-OPEC suppliers. Energy Minister Alexander Novak said Tuesday that he’s not planning to attend Wednesday’s talks.

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