Opec disappoints crude oil market, brings a knife to a gun fight
- Author: Zachary Reyes Jun 04, 2017,
Jun 04, 2017, 15:08
Most investors had already factored in this outcome as Saudi Arabia and Russian Federation earlier in May that a nine month extension was needed, but some had bet on the producers agreeing to bigger reductions in supplies.
Hamid stated that only decisive action from OPEC will boost prices from current levels, which is constantly facing the challenges of increasing USA shale output. In May-June, the level of production is expected to decline and, in general, the obligations will be fulfilled in full by half a year.
"Nine months with the same level of production that our member countries have been producing at is a very safe and almost certain option to do the trick", Khalid Al-Falih, Saudi Arabia's energy and industry oil minister told CNBC ahead of the closed-door meeting on Thursday.
"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.
"All indications are that a nine-month extension is optimal".
Clawing back some of Thursday's losses, global benchmark Brent futures LCOc1 were up 28 cents at $51.74 a barrel at 0837 GMT. US shale production requires a higher price to be profitable compared with traditional crude oil.
Neil Wilson at ETX Capital said Opec members "bottled it", adding: "A nine-month extension just isn't enough to really lift oil prices as we'll continue to see United States shale fill the gap".
In the meeting at OPEC headquarters in Vienna, energy ministers from OPEC and non-OPEC countries agreed to extend the oil production cut until March next year. The initial agreement would have expired next month.
Gas prices promise to stay low through the coming warm-weather season as a global glut of oil continues. Investors are also nervous about increasing crude output from Nigeria and Libya, which are exempt from cutting production as they attempt to restore supplies sidelined by internal conflicts. "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".