Oil price plunges 4%% as OPEC agrees to extend production cuts
- Author: Zachary Reyes Jun 03, 2017,
Jun 03, 2017, 13:31
The price of oil has fallen by about 5%, despite oil-producing nations agreeing to extend production cuts for a further nine months.
U.S. West Texas Intermediate (WTI) crude futures were below $50, at $49.15, though still up 16 cents from their last close.
In spite of OPEC and Russia's output cuts, oil stockpiles in the U.S. and other major economies remain rather obstinately high - never mind the impatient investors, that's causing all sorts of problems. Opec originally increased production to lower the oil price, making fracking less cost-effective, so forcing shale oil producers out of business.
Parties to a multilateral agreement that sidelined about 1.8 million barrels per day said Thursday the deal would continue into March 2018, three months longer than originally planned.
"The outcome of the OPEC meeting which was scheduled on 25th May 2017 made a decision to cut 1.8 million barrels per day through March 2018".
Reduction in the oil output was one way by which OPEC and other oil producing countries could maintain a balance between the demand and price combination for oil in the worldwide market.
Buy the rumor and sell the news worked well on Thursday, when Opec disappointed the market by announcing same quantum of cut as prices tanked more than 6 per cent from its five-week high of 52 per barrel on Thursday itself.
On the brighter side Hong Kong-listed airline stocks rose sharply on expectations that a slide in oil prices would reduce carriers' fuel cost in the near future.
The price of Brent crude has since recovered slightly but is still trading over 3.5% down.
Investment bank Goldman Sachs said Opec and Russian Federation needed to cut production until stockpiles returned to normal.
"The conference thanked all OPEC member countries for their commitment, as reflected in the unprecedented conformity levels to the decision taken".
Some oil market observers may argue that capitulation is near and that the market has digested most of the readily available bad news, but there are other factors that need to come into play to help oil rebound. That would cut off about 2% of the world's oil supply over the remaining nine months of the agreement.
The bright outlook for wandering USA motorists is thanks to oil prices, which slipped further on Friday following an OPEC-led decision to extend current production curbs that investors gauged did not go far enough to reduce a global supply glut.
The long-term trajectory for the price of oil seems, at this point in time, to be relatively flat.
Gaining back some of the losses, Brent crude futures were up 0.56 percent to $51.75 per barrel as of 9:45 am GMT on Friday.
United States crude prices were flat at $48.88 on Friday, after losing 4.8% overnight, set to end the week 2.8% lower.