Asian energy firms sink as OPEC output deal disappoints

Oil prices rebounded to rise more than 1 per cent on Friday, but Brent crude ended the week almost 3 per cent lower after an OPEC-led decision to extend production curbs did not go as far as many investors had hoped.

Buy the rumor and sell the news worked well on Thursday, when Opec disappointed the market by announcing same quantum of cut as prices tanked more than 6 per cent from its five-week high of 52 per barrel on Thursday itself.

In mid-day trading on Friday, Brent crude had recovered slightly holding just below US$52 with WTI still hovering below US$50 a barrel.

"OPEC agreeing to nine months without deeper cuts leaves prices at the mercy of inventories and usa production and demand", said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

Even as the OPEC and non-OPEC producers agreed to extend until March 2018 their ongoing oil output cuts, India has reached an understanding with the global oil cartel to establish a joint working group to serve as a forum for "producer-consumer dialogue" to address mutual concerns.

However, OPEC and the other countries involved might not have agreed to cut production further as that could have proved beneficial for the American shale oil industry.

Analysts criticized OPEC for failing to slash oil production which led to the falling prices of oil.

"With supply-side dynamics undergoing a fundamental shift thanks to the impact of U.S. shale, only decisive action from Opec will boost prices from current levels, and so far investors have not been satisfied that Opec is tackling the issue aggressively enough".

One supportive factor for oil prices have been U.S. data showing seven weeks of draws on domestic crude inventories, said Mark Watkins, regional investment manager at U.S. Bank.

Saudi Aramco and its shareholder, the Saudi Arabian government, will profit by Thursday's decision, said Khalid al-Falih, the Saudi energy minister.

The OPEC alliance faces competition from US shale producers.

Making the long oil trade all the more hard is that high US oil inventories mute the impact of output reductions by OPEC and other countries, indicating that oil bulls need to focus on other factors.

The price for Brent crude oil was up a fraction of a percent in the moments before the start of the trading day in NY to $51.50 per barrel.

"We project that annual average crude oil production in the U.S. and Canada will rise by 1.6m bpd between 2016 and 2018, an offsetting factor for the cuts being made by Opec and its non-Opec partners". "Hopefully the market is saved by the US driver this Memorial weekend".

Opec produces a third of the world's oil. Before Thursday, investors had hoped the cartel might reduce output even further to drain a global glut that has depressed the market for nearly three years.

With US output rising steadily and OPEC and its allies potentially ramping up production in 2018 to regain lost market share, many traders, including Goldman Sachs, already expect another price slump.

  • Zachary Reyes