Black Friday is Now! Don’t miss out on up to 60% OFF InvestingProCLAIM SALE

Oil remains weak after OPEC-led output cut extension falls below expectations

Published 2017-05-25, 09:28 p/m
© Reuters.  Oil remains weak after OPEC-led output cut extension falls below expectations
GS
-
BARC
-
LCO
-
CL
-

* OPEC, other producers extend production cut to March 2018

* Many had expected a longer and/or deeper supply cut

* Rising U.S. production undermines efforts to tighten market

By Henning Gloystein

SINGAPORE, May 26 (Reuters) - Oil markets remained weak on Friday after tumbling in the previous session when OPEC and allied producers extended output cuts but disappointed investors betting on longer or larger supply curbs.

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) until the end of the first quarter of 2018. The initial agreement would have expired in June this year. oil plunged 5 percent following the announcement, and held its losses early on Friday.

Brent crude futures LCOc1 were trading at $51.47 per barrel at 0125 GMT, up just 1 cent from their last close.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were back below $50, at $48.88, down 2 cents from their previous close.

Britain's Barclays (LON:BARC) bank said the price falls were a result of some expectations ahead the meeting for longer or deeper production cuts.

"Some market participants may have expected either a deeper cut, a longer one, inclusion of more countries, or other such icing on the cake," the bank said.

Barclays said the ongoing production cut would result in a drawdown of bloated fuel inventories, but added that OPEC's goal of bringing stocks down to their five-year average would not be reached within the timeframe of the production cut.

Other analysts, including at Goldman Sachs (NYSE:GS) and Jefferies bank said a normalization of oil inventories would occur in early 2018.

Analysts also said that the OPEC-led production cuts would support a further rise in U.S. output.

Ann-Louise Hittle, vice president at energy consultancy Wood Mackenzie said that the "decision in Vienna sends a signal of continued support for oil prices from OPEC which helps U.S. onshore drillers make plans" to further increase their production.

U.S. oil production C-OUT-T-EIA has already risen by 10 percent since mid-2016 to over 9.3 million bpd, close to the output of top producers Russia and Saudi Arabia.

"The growth in U.S. production is indeed daunting for the oil bull case," Jefferies said.

Goldman Sachs warned that the biggest risk to oil markets was what would happen next year, at the end of the OPEC-led production cut.

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

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.