The oil complex settled lower across the board Thursday as prices vacillated with the latest jockeying out of Vienna where OPEC and non-OPEC representatives have begun to discuss potential output increases.

OPEC and its 10 non-OPEC partners are in talks in Vienna to ease their supply-cut agreement in response to supply tightness caused by Venezuela’s collapsing economy, the US reimposing sanctions on Iran in November and other factors. Ministers have not agreed how any production increase would be divvied up between countries.

Prompt August ICE Brent settled $1.69 lower at $73.05/b, while NYMEX August WTI finished 17 cents lower at $65.54/b. WTI held in positive territory for much of the day until dipping into the red just ahead of the settle. 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 3.7 cents 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 prompt contract below $2/b for the first time since April.

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

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

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

“We see a 600,000 b/d agreed increase,” Platts Analytics said in a note. “Not all countries will be able to increase production (they are already producing at capacity). But Saudi Arabia will likely make up for shortfalls in supply.”

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

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

“These sanctions are very strong, the sanctions are practically immobilizing PDVSA,” Quevedo told reporters on the sidelines of the OPEC International Seminar ahead of Friday’s OPEC meeting. “They are trying to asphyxiate PDVSA.”

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

–James Bambino, james.bambino@spglobal.com

–Staff reports, newsdesk@spglobal.com

–Edited by Derek Sands, derek.sands@spglobal.com

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