Oil plunges 5 pct on disappointment with OPEC cuts
- Author: Zachary Reyes May 27, 2017,
May 27, 2017, 5:48
The Indian basket, comprising 73 per cent sour-grade Dubai and Oman crudes, and the balance in sweet-grade Brent, closed trade on Thursday at $52.73 for a barrel of 159 litres, which was lower than the previous day's close at $53.28.
Global benchmark Brent futures were down 37 cents at $51.09 a barrel at 1333 GMT, hitting a daily low of $50.71.
Nigeria and Libya would also be exempted from the cuts as their output has remained curbed by disturbed conditions internally.
A generally fragile United States dollar tone provided some net support to oil prices, although the impact was offset by a slightly more fragile tone surrounding risk appetite.
The reduction was nearly 1.8 million barrels per day - equivalent to about 2% of global oil production.
However, there had been hopes that the flagged extension would be 12 months or that the cuts would be deeper, fueling a rally in crude prices.
The Organisation of the Petroleum Exporting Countries (OPEC), that caters to one-third of the world's oil requirement, along with non-OPEC countries Thursday extended a production cut aimed at tightening the market well into 2018.
The OPEC-led decision to extend a production cut to March 2018 disappointed financial investors, prompting an exit from oil futures markets, while refiners in Asia were mostly concerned with whether it meant they would need to go hunting for crude.
Going forward, Nizam Hamid, European ETF strategist at WisdomTree said: "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". The day's volumes of 1.1 million contracts of WTI were the highest since the November 30 session, when OPEC first announced cuts.
Goldman Sachs warned that the biggest risk to oil markets was what would happen next year, at the end of the OPEC-led production cut.
Russia's Energy Minister said on Friday that a OPEC and non-OPEC committee could discuss possible adjustments to the agreement when it meets. This is why Saudi cargoes to the U.S.in recent months have totaled 1.21 million barrels a day - the highest rates since 2014, the year of the oil price crash.
"Next year, we actually think USA oil production won't increase as much because they've increased so much this year", Yergin said.