Oil Prices Drop 5 Percent after OPEC Meeting in Vienna

Oil had climbed back above $51 a barrel after Saudi Arabia and non-OPEC member Russian Federation rallied support from the Organization of Petroleum Exporting Countries and other nations to extend the deal into 2018.

Financial traders did not like what they heard, thinking it meant an ongoing oil glut.

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.

"I think OPEC is actually back in business [but] as a swing producer", Daniel Yergin told CNBC.

A leading oil economist has warned that the extension to OPEC output cuts "may not be enough".

This would force refiners to start using up reserves, pushing up prices at least until production catches back up with consumption.

Exporters were keen to maintain global market share, and they cut domestic supplies or shipments to marginal buyers. While yesterday the market sent prices almost 5 percent lower.

"This is half of the roughly 1,800 million barrels per day taken off the market by the OPEC-led cuts", said the analysis.

OPEC sources said that will change as top exporter Saudi Arabia especially is keen to see a visibly tighter market. At the same time, he said "more time is needed" to reduce oversupply.

Yergin noted that the USA shale production is profitable at $40 to $50 per barrel today. "Africa, Russia", Ashok said.

"It is also worth noting that Saudi Arabia is in the process of listing Aramco (the national oil company), and will therefore require a stable oil price to support their US$2tn valuation of the company, and so it is in the country's interest to continue with production cuts".

The official said the downfall in global crude prices following the OPEC's meeting in Vienna had come as a shock to him though he expressed hope that, the will of OPEC members will help lift up oil prices in the near future. But stubbornly high fossil fuel inventories - which have been maintained worldwide, but are most readily measured in the USA due to open customs data - have prevented the measures from buttressing oil prices in a lasting way. (6505.TW), one of Asia's biggest refiners and petrochemical producers.

Oil markets and investors are a troubled lot with situation like a pendulum or a double edged sword wherein the benefits of lower production by the OPEC members are getting compensated with higher production from the US.

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 U.S. producers.

  • Zachary Reyes