European Markets Mixed After OPEC Disappointment, Weak Sterling
- Author: Zachary Reyes May 31, 2017,
May 31, 2017, 13:36
There are arguments whether the cut needs to be for 6 months or nine months or 12 months.
Crude prices plunged 5 percent after the decision as some market participants had priced in more aggressive output cuts from the OPEC-led group.
Clawing back some of yesterday's losses, global benchmark Brent futures were up 28 cents at $51.74 a barrel.
Since then, the low oil prices environment has been also costly for USA shale oil producers who managed to adapt to the new price setting.
"OPEC production cuts are most effective when they support a rebalancing that is already [taking] place, and that is indeed what it looked like at the time of the previous OPEC meeting" in November, said Rats.
The pair had been grinding higher for the last month and while it did manage to briefly penetrate 1.30 on a few occasions, the moves were always lacking conviction which suggested markets weren't happy at these levels. Some countries expected the extension to be limited to next 6 months but some of the OPEC partners projected to be nine months but some countries like Russian Federation are projecting it to gone beyond 9 months and expected to be continued until 12 months.
Here is an account of what the deal entails for oil producing and consuming nations. Crude oil prices fell quite sharply in the aftermath of this announcement however, with many investors clearly having hoped for more aggressive cuts.
Analysts also said that the OPEC-led production cuts would support a further rise in United States output. The selloff "is likely short lived, and we continue to believe that inventory draws in the coming summer months will be supportive of prices". "We even considered options for higher cuts", he said during the Vienna meeting.
OPEC has always been referred to as a swing producer, having the ability to control supply in order to influence the market and prices.
U.S. production could be up to 800-1,000 million barrels per day higher year on year by end-2017, according to the Fitch forecasts.
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.