Battered oil claws back losses after OPEC deal falls short of expectations
- Author: Zachary Reyes Jun 03, 2017,
Jun 03, 2017, 16:18
But any uptick in prices may be modest and temporary. Backwardation - when near-term crude prices are higher than those for later months - will be needed for the cuts to shrink the glut, and prevent an increase in US shale production, the bank said.
The price rise this year has spurred growth in the U.S. shale industry, which is not participating in the output deal, thus slowing the market's rebalancing with global crude stocks still near record highs.
A day after OPEC announced its decision, crude prices were still on the defensive prompting a general move away from riskier assets.
"Some market participants may have expected either a deeper cut, a longer one, inclusion of more countries, or other such icing on the cake", analysts at Barclays Plc including Michael Cohen wrote in a research note.
Brent crude fell $2.60 to $51.36 a barrel on Thursday and was trading at $51.47 on Friday morning while the West Texas Intermediate slipped $2.58 to $48.78 a barrel and had reached $48.82 on Friday. USA crude oil prices relinquished the $50 handle which it had held for much of the week. A continuation of the earlier level of cuts was perhaps the minimum they were expecting.
As the de facto leader and largest producer of OPEC, Saudi Arabia has cut its production the most of any member of the bloc. Non-OPEC countries led by Russian Federation chipped in with a further 600,000-barrel reduction.
According to Business Insider, with 19 straight weeks of rig additions and oil near $50 a barrel, producers are clearly more confident in market conditions than they were a year ago.
Despite oil's negative reaction to the OPEC production cut extension, prices should grind higher into the $60s by the fourth quarter, RBC's Helima Croft told CNBC on Thursday.
At the time, non-OPEC output was falling at a rate of about 700,000 barrels a day, while global demand was growing around 1.5 million barrels a day, year on year, and "visible inventories" were declining by roughly 1.2 million barrels a day, he said.
After U.S. Federal Reserve showed concern in raising interest rates, World stocks hit record high and the dollar dipped while oil rose after top producers agreed to extend output cuts for up to a year.
Stocks in Asia were mostly lower Friday after major oil-producing nations agreed to extend their ouput cuts for nine further months at an OPEC meeting in Vienna on Thursday.