OPEC, other nations extend output cut to March
- Author: Zachary Reyes May 28, 2017,
May 28, 2017, 10:25
With U.S. output rising steadily and OPEC and its allies potentially raising production in 2018 to regain lost market share, many traders, including Goldman Sachs, already expect another price slump.
Oil had climbed back above US$51 a barrel after Saudi Arabia and non-Opec member Russian Federation rallied support from the Organisation of Petroleum Exporting Countries (Opec) and other nations to extend the deal into next year.
After sparing its prized United States market from oil-output cuts, Saudi Arabia plans to "markedly" reduce exports to its political ally in the coming weeks in an effort to reduce swollen and highly visible crude inventories in the world's biggest consumer.
The agreement would not have come as a surprise to all.
"Texas shale producers forced OPEC this morning to extend its oil production cuts for nine months", said Ryan Sitton, of the Texas Railroad Commission. Industry experts had predicted OPEC would agree to deeper curbs or a 12-month extension.
That could increase supplies and drag down prices again. Brent crude, the global standard, rose 3 cents to $51.49 a barrel in London.
Regarding the effect of the proposed partial sale of US Strategic Petroleum Reserve (SPR) on OPEC deal, the analysts noted that the impact on oil prices from a gradual sell-off of the SPR is likely to be small as commercial stocks are falling.
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.
At 8:14am BST, Brent was broadly flat at $51.49 per barrel up 0.1% or 3 cents, while the WTI was down 0.1% or 6 cents to $48.84 per barrel. Post-meeting, however, financial markets sold off oil after the production cut extension agreement largely due to the belief that not enough had been done to rid the market of the growing supply glut.
However, the scale of output cut remains the same at 1.8 million barrels a day.
The problem for OPEC is that while crude sits substantially below the highs of around $100 a barrel reached in 2014, it is high enough to bring back into the market US producers who eased back as prices tumbled past year.