Crude prices surprisingly fall after extension of oil deal
- Author: Zachary Reyes May 27, 2017,
May 27, 2017, 21:07
There are arguments whether the cut needs to be for 6 months or nine months or 12 months.
Oil prices dropped more than 4 percent as the market had been hoping oil producers could reach a last-minute deal to deepen the cuts or extend them further, until mid-2018. Kazakhstan, Mexico and Azerbaijan are among the larger non-member contributors and the deal, Bahree said, underscores the strength of the relationship between OPEC and other producers.What's now for oil price amid OPEC/N-OPEC agreement?Crude oil plunged 5 percent following the announcement, and held its losses early on Friday.
"Indications are that May will even be better than April", said Saudi Arabia Energy Minister, Khalid Al-Falih.
U.S. West Texas intermediate crude futures ended at $2.46 lower, or 4.8 percent, at $48.90 a barrel, breaking below $50 for the first time all week.
Since then, the low oil prices environment has been also costly for US shale oil producers who managed to adapt to the new price setting.
But a rise in output of USA shale oil is likely to offset the effects of the extended deal. WTI-Brent spread was stable on May-2017.
"If anything, the simple extension begs questions about what happens next March and what OPEC's long-term strategy is for combating rising U.S. production and a prolonged global supply glut, to get prices back above $60", he said. A failure to agree on a bigger reduction in supplies caused some disappointment to investors and led to oil prices falling.
Analysts also said that the OPEC-led production cuts would support a further rise in US output. The deal involving Organization of the Petroleum Exporting Countries members and Russian Federation was widely expected by analysts, but disappointed investors who were hoping for a longer extension. The move also highlights heightened volatility in the oil market. Beyond bloated inventories, one of the main reasons markets have not tightened more has been US oil production, which has soared more than 10 percent since mid-2016 to 9.3 million bpd.
Yergin noted that the USA shale production is profitable at $40 to $50 per barrel today.
Not only did Opec underwhelm the market, many commentators believe curtailment of the cartel's output will be matched by further increases in United States shale production, with the headline output stateside tipped to rise to 10m bpd.