Hedge funds and speculators slashed their bets on a higher oil price by the most in more than two years as Opec and other big producers gather in Algiers this week to discuss a possible deal to limit output.

Investors cut their net long position — the difference between bullish and bearish holdings — in the two main oil contracts by the equivalent of 105m barrels in the week that ended September 20, according to data from exchanges and the Commodity Futures Trading Commission.

That marks the largest one-week drop since July 2014 in Brent and West Texas Intermediate, underlining that market participants are increasingly sceptical a deal will be reached later this week.

“Hopes for a substantive agreement have faded over the past week,” said Adam Longson, an analyst at Morgan Stanley. “Early talks have failed to yield results. Plus, several members noted the informal meeting is only an opportunity for consultation.”

Brent rose $1.51, or 3.3 per cent, to $47.41 a barrel on Monday, having dropped 4 per cent late last week. Opec delegates said the meeting on Wednesday would be a chance to consult rather than reach a binding deal on output levels. That could yet happen later this year, possibly at Opec’s ministerial meeting in November.

Opec kingpin Saudi Arabia has said it will back a co-ordinated cut in production of up to 1m barrels a day to help rebalance the market, but only if regional rival Iran agrees to freeze its output.

While that represents a shift from its policy of the last two years, which has involved maintaining high production to exert pressure on rivals inside and outside Opec, it also sets a very high bar.

“The kingdom is looking for consensus among oil producers to reach a credible arrangement for stabilising oil markets,” a Saudi official said on Friday.

Hopes for a substantive agreement have faded over the past week

While the change in tone from Saudi Arabia has been welcomed by smaller producer countries within the cartel, Iran is likely to resist calls for it to curb output.

Tehran wants to take its production back to at least 4m barrels a day, which it says it reached in 2011 before sanctions were imposed. It is currently pumping about 3.6m b/d, according to analysts.

On Monday, the country’s oil minister sought to damp hopes of any deal, saying the meeting in Algiers was only “advisory”, according to Iran’s state news agency Shana.

“This is an advisory meeting and that’s all we should expect from it,” Bijan Zanganeh was quoted as saying. “The talks among Opec members can be used for the Opec summit in Vienna in November.”

There are a number of options under discussion for trimming production should Iran agree to a freeze. Big producers could reduce production to January or August levels, the average of the first quarter or the first half of this year.

One preference for Saudi Arabia is to use an average of July and August production as a base, and then see a cut of up to 4 per cent from all producers, except Libya and Nigeria, according to one person familiar with the kingdom’s policymaking.

Oil prices have more than halved since mid-2014 as supply has overwhelmed demand, shredding the budgets of producer nations and major oil companies. A similar plan to limit production unravelled in April after Iran refused to join the discussions.

The idea has been revived because the rebalancing of the oil market is taking longer than expected, with supply expected to outstrip demand until the middle of next year, according to leading forecasting agencies.

For Saudi Arabia, oil at $45 a barrel complicates its plan to sell a minority stake in Saudi Aramco, the national oil company.

Speaking on Monday in Dubai, Aramco chief executive Amin Nasser said the oil company would be listed on the Saudi stock exchange and potentially an overseas bourse “depending on studies under way”. He also said the oil market remained “weak”, although the most “severe” period of pressure had passed.

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