OPEC disappointment hits oil, stocks; sterling down on United Kingdom vote jitters

"The extension through to the first quarter of 2018 makes it clear to the oil market that OPEC intends to continue to support oil prices at the expense of market share, for the time being", said Ann-Louise Hittle, with energy consulting firm Wood Mackenzie.

No wonder, crude oil prices plunged 5% to below $49 a barrel after Thursday's OPEC meeting, reflecting skepticism about the group's strategy. Much of the responsibility will, therefore, continue to fall on Russian Federation to secure the non-OPEC production cuts.

Saudi Arabia expects the likely extension of a deal to cut output to ease the global crude glut sufficiently by early 2018, Riyadh's oil minister Khalid al-Falih indicated.

While skeptics may argue that compliance did little to counter rampant production from rogue OPEC members for the first six months of the cutback agreement and that it's problematic that modest Chinese growth demand will compensate for the huge gains continuing to be made by USA shale, Schenker is hardly alone in his upbeat analysis.

For all the talk of near-perfect compliance from OPEC, we have consistently highlighted how the cartel has kept global markets well-supplied, as apparent production cuts have not been reflected through to broad-based and consistently lower exports.

Another issue is that OPEC deliveries to the United States continue to grow, despite the output cuts.

There was some disappointment that deeper production cuts had not been sanctioned and that no more non-OPEC countries had joined in the agreement.

In the meeting at OPEC headquarters in Vienna, energy ministers from OPEC and non-OPEC countries agreed to extend the oil production cut until March next year.

Also, Algeria is expected to reduce its output per day by 50,000, Angola, 87,000, Ecuador, 26,000, Gabon, 9,000, Iran, 90,000, Iraq, 210,000, Kuwait, 131,000, Qatar, 30,000, UAE, 139,000 and Venezuela by 95,000.

The aim was to reduce a global supply glut that had seen the oil price plunge from more than $100 per barrel in 2014 to almost $25 in early 2016. The SuperTrend (10,2) looks close to flipping from an uptrend to a downtrend, but we will need to wait for today's closing price to confirm this assumption.

"In this period of market rebalancing, it seems opportunities are hard to find but the good news possibly is there seems to be more stability from the lower volatility, higher correlation and tight term structures".

The market reaction was all the more disappointing given that from OPEC's perspective, the meeting went very well. Brimming stockpiles will come down as the cuts are amplified by stronger gasoline demand from American drivers taking summer roadtrips. It may be a necessary move, as the slump in oil prices after Thursday's agreement showed growing skepticism about the effectiveness of the cuts.

"The price could conceivably hit $60 barrels by year-end".

It was last 0.8% stronger at JPY 110.94 per $1.

  • Zachary Reyes