Oil price down in spite of OPEC production cuts
- Author: Zachary Reyes Jun 06, 2017,
Jun 06, 2017, 23:16
At Thursday's meeting in Vienna the Organization of the Petroleum Exporting Countries and some non-OPEC producers agreed to extend a pledge to cut around 1.8 million barrels per day (bpd) of output until the end of the first quarter of 2018. But the hoped-for benefits could be short-lived.
Global oil prices dropped 5 percent despite the extended oil production cut from oil producing countries which is scheduled to last for nine months.
OPEC's appetite to extend cuts further into 2018 may be reduced if crude stocks remain resilient and market prices subdued.
Analysts also said that the OPEC-led production cuts would support a further rise in USA output.
The extension, which also includes Russian Federation and other non-OPEC countries, was widely expected and had already been factored into oil prices.
Cantor Fitzgerald Europe oil and gas research director Sam Wahab said: "Both Brent and WTI traded around one-month highs ahead of the OPEC meeting, but were tempered when Saudi Arabia's oil minister played down further reductions in any new OPEC output deal".
The FTSE 100, U.K.'s benchmark for blue-chip stocks, was up 10.15 points or 0.14 percent to 7,527.86.
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.
Less oil on the market normally means higher value per barrel.
The alliance between OPEC and non-OPEC countries faces competition from US shale producers.
However, it is unclear whether the deal will be able to support a considerable increase in prices.
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". The reduction was nearly 1.8 million barrels per day - equivalent to about 2% of global oil production.
Opec's aim is to counter the growth of U.S. oil production, in particular shale oil, which is produced through "fracking", when fluid is pumped into oil-bearing shale rock.
Rahman said Malaysia believes that a more stable and balanced global oil prices can be achieved by stimulating a sustainable balance in the demand and supply mechanism to achieve an optimal market price.