Prices fall as OPEC extend oil deal for fresh 9 months
- Author: Zachary Reyes May 26, 2017,
May 26, 2017, 15:48
Non-Opec oil producers led by Russian Federation agreed yesterday to join Opec (Organisation of Petroleum Exporting Countries) in extending production cuts for nine months until March 2018, delegates said.
The agreement would maintain levels of production at about 1.8 million barrels per day lower than late past year, or about 2% of global oil supply being withheld.
But if the goal of this market intervention was to reduce an oversupply and set off a price rebound, why has Brent crude fallen almost 5 percent in trading since the announcement? USA shale production requires a higher price to be profitable. The day's volumes of 1.1 million contracts of WTI were the highest since the November 30 session, when OPEC first announced cuts.
Oil prices rebounded on the heels of the first losing session in six on Thursday as investors undertake their last positioning ahead of later Thursday's meeting of the Organization of Petroleum Exporting Countries.
While U.S. output quickly declined along with falling prices in 2016, shale producers have quickly pumped out more this year on the modest price recovery.
USA oil production C-OUT-T-EIA has risen more than 10 percent since mid-2016 to more than 9.3 million bpd.
Opec countries and 11 other oil-producing nations had first agreed to reduce production in December in an effort to boost flailing prices.
Commerzbank cited data from the U.S. Department of Energy saying U.S. production was roughly 540,000 barrels per day higher in mid-May than at the start of the year.
Jamie Webster, an oil market analyst from the Center on Global Energy Policy at Columbia University, told Xinhua that the shale oil in U.S.is playing an important role in the oil market.
"This offsets almost half of OPEC's production cuts", it noted. He said "we broke bread" with shale producers at recent meetings in Houston and Vienna, adding, "we all belong in the same boat.and with this breaking of the ice, we hope to develop this relationship further".
'If US shale producers exceeded our projected increases, it'll drive the price down again, ' Arrington said.
At the same time Al-Falih indicated OPEC was in for the long run.
Oman, the largest non-OPEC producer in the region supports to extend the agreement and will continue to cut production by almost 4.5 per cent if the deal goes through.
The decision to maintain oil cuts may in fact have only kicked the can down the road until March.