OPEC: when meeting expectations are simply not enough

While OPEC's move Thursday had been expected, some oil market investors had hoped producers would agree to longer or deeper cuts to drain a global glut of crude supplies. WTI (Light Sweet Crude Oil) in NY dropped by 0.78% to $48.52 per barrel.

"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 and other oil-producing nations have extended their output cuts for an additional nine months in an effort to shore up prices. Earlier in May both Saudi Arabia and Russian Federation, which is not a member of OPEC but is seen as a critical part of any potential agreement, said they backed extending the production cuts until March 2018.

OPEC members and non-members first reduced production after reaching an agreement in November 2016 to cut productions by 1,200,000 barrels per day for six months.

With U.S. output rising steadily and OPEC and its allies potentially raising production in 2018 to regain lost market share, many traders, including Goldman Sachs, already expect another price slump.

"We have (so far) not had any impact in terms of any cut from any of these (OPEC) sources into India", said B. Ashok, chairman of Indian Oil Corp, the country's biggest petroleum company. But it also spurred growth in the USA shale industry, which is not participating in the output deal, thus slowing the market's rebalancing. If that coincides with strong shale-oil growth, the market looks to be oversupplied again, he said. Oil price suffered more than 3 percent selloff after the OPEC and participating N-OPEC countries announced the agreement to an extension for nine months until March 2018. WTI is now trading at $49.1 per barrel and Brent at $2.7 per barrel premium to WTI.

The cynics among you will spot that these coordinated production cuts are aimed at repairing the massive supply glut that sent our precious crude crashing to unthinkably-low prices previous year.

Clawing back some of yesterday's losses, global benchmark Brent futures were up 28 cents at $51.74 a barrel.

  • Zachary Reyes