Oil prices retreat on profit-taking
- Author: Zachary Reyes May 24, 2017,
May 24, 2017, 7:32
Meeting on the sidelines of China's One Belt One Road conference in Beijing, energy ministers from the two countries said supply cuts should be prolonged for a further nine months, ie, until March 2018, from June 2017 as originally scheduled, to rein in a global glut that is preventing prices from firming up. That is longer than the optional six-month extension specified in the deal.
Brent crude, the worldwide benchmark for crude oil, gained around $1.53 to trade at $52.37 per barrel on the global market. US light crude was also 30 cents higher at $49.15 a barrel.
The Organisation of the Petroleum Exporting Countries (Opec), of which Saudi Arabia is the de facto leader, and other producers, led by Russian Federation, pledged late last year to cut output by 1.8 million barrels per day (bpd) during the first half of this year. "We bring together a complete consensus of the group", the minister said.
Oil traders and analysts were surprised by the strong wording of the announcement.
The market reaction reflected how far the commitment went beyond market expectations: the consensus view over the weekend was that the output deal would be extended through the end of the year, while some market participants were also concerned that Saudi Arabia and Russian Federation, the two biggest exporters, would abandon restraint completely rather than lose any more global market share to American producers.
Supplies of gasoline probably dropped 1 million to 240 million barrels while inventories of distillate fuel, a category that includes diesel and heating oil, slipped 1.25 million to 147.5 million barrels last week.
USA energy firms added oil rigs for a 17th week in a row, extending a 12-month drilling recovery, energy services firm Baker Hughes Inc said on Friday.
OPEC members agreed in November to cut 1.2 million barrels a day of oil production.
OPEC and other major producers have reached a preliminary agreement to extend limits on output, the state-run Kuwait News Agency reported on Sunday, citing a statement by Oman's Oil Minister Mohammed Al Rumhy.
"These combined volumes could largely offset the benefit of the extended cuts", Goldman Sachs said, keeping its average Brent price forecast for the third quarter at $57 per barrel.
Opec ministers are due at the end of this month to meet in Vienna to discuss the extension of output curbs, seeking to reach agreement among all participating members inside and outside the cartel.
"[But] compliance needs to remain high, and long-term oil prices need to remain low to prevent shale producers from ramping up investment significantly more".