Asian Stocks Mixed, Investors Digest Oil Output-Cut Extension
- Author: Zachary Reyes May 30, 2017,
May 30, 2017, 9:26
The last time prices were this low was in October, just before an Opec meeting at which it agreed to cut the oil supply by 1.8 million barrels a day in an attempt to bump up prices.
That's because USA shale oil producers have taken advantage of the uptick in prices since previous year to ramp up production.
The broader implication for the decision could suggest that OPEC ministers don't think a deeper cut would have been supported by customers in an economic sense, and thus may have resulted in slowing dollar revenues for cartel member states, many of which rely heavily on oil exports.
Yet he said the wild card for the oil market has been the growth in USA crude production, particularly from shale.
Crude prices tumbled 5 percent following the decision Thursday and extended losses on Friday. Investors will also get a look at durable goods order data for April, the University of Michigan's consumer confidence snapshot and the Baker Hughes oil rig count.
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.
So, while OPEC's seemingly unflappable ability to cobble together an agreement has managed to keep a floor under prices this year, the group's tactics haven't fixed the underlying problem.
"We considered various scenarios from six to nine to twelve months and we even considered options for higher cuts.
As OPEC cuts and if USA inventories decline to low levels, oil prices may increase, so China may use their own reserves or shop around rather than purchase oil at a higher price, capping the high end of the price range".
Many investors had been hoping Saudi Arabia and Russian Federation would pressure fellow producers to either make deeper cuts or to hold their fire power for even longer.
Oil at $50 a barrel has encouraged more US shale output, since production costs are down from a few years ago.
SINGAPORE (Reuters) - Oil prices weakened on Friday, prompting a move away from riskier assets and depressing Asian stocks, after an OPEC agreement to extend cuts in crude production for a further nine months disappointed investors who had bet on bigger output cuts.
Analysts criticized OPEC for failing to slash oil production which led to the falling prices of oil.