Oil Slumped Post OPEC Extension Announcement
- Author: Zachary Reyes May 28, 2017,
May 28, 2017, 5:24
Bhushan Bahree, senior director at IHS Markit said the one thing Opec and its alliance of oil producing governments can not do is a government-level deal limiting the output of United States producers.
OPEC and non-OPEC countries agreed on May 25 in Vienna to prolong the oil cut deal until April 2018.
"OPEC member countries and non-OPEC parties Azerbaijan, Bahrain, Brunei Darussalam, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan and South Sudan, after taking into account the decision reached by OPEC at their 172nd meeting, recognised the need to continue co-operation among oil exporting countries to ensure stability in the oil market".
"Malaysia welcomes the decision agreed today and reaffirms its commitments to today's agreement and wishes the cooperation to be successful", he added.
Analysts also said that the OPEC-led production cuts would support a further rise in U.S. output. WTI is now trading at $49.1 per barrel and Brent at $2.7 per barrel premium to WTI. He said the rally in recent days left few buyers to support futures once prices started to fall.
Global benchmark Brent futures rose 50 cents to $51.97 a barrel at 12:29 p.m. EDT, after hitting a session low of US$50.71.
Capital Economics forecasts the Brent oil prices to stand at $56 and $60 per barrel in the third and fourth quarters of 2017, respectively.
Early indications from USA futures prices suggest a similar pullback on Wall Street Friday, with modest declines priced into both the Dow Jones Industrial Average and the broader S&P 500, the latter of which printed its second-consecutive all-time high Thursday when it closed at 2,415.07 points.
According to OPEC President and Saudi Energy Minister Khalid al-Falih the output cuts will be extended further when the signatories to the deal meet next in November.
Crude oil prices fell 5% after the announcement, which disappointed a market hoping for deeper production cuts.
"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".
Producers have expressed confidence that this plan will bring down crude oil stocks to their five-year average of 2.7 billion barrels.
US output since a year ago has increased by almost a million barrels a day to a daily 9 million barrels.