Oil edges up after disappointing OPEC meeting

Cheryl Sanders
May 29, 2017

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

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". Although many investors expected that the oil cartel will deepen the amount of supply cuts to rebalance the market. 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.

Oil benchmarks staged a marginal recovery in early Asian and European trading on Friday (26 May), after a decision by Opec and selected non-Opec producers to maintain their previously stated level of output cuts underwhelmed the market. But this seems to fail miserably to have a change in demand for the product leading to decrease in oil prices. US shale production requires a higher price to be profitable compared with traditional crude oil.

A nine-month extension of the OPEC oil output cut deal will be more than enough to bring stocks down to their five-year average, says an analysis done by the UK-based consulting company Capital Economics.

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.

The alliance between OPEC and non-OPEC countries faces competition from USA shale producers. USO, the most heavily traded oil exchange-traded product in the USA, is now nearly 20 percent below its 52-week high, putting it dangerously close to officially being in a bear market.

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".

That could increase supplies and push down prices. Falih informed that OPEC members Nigeria and Libya would still be excluded from cuts.

The cuts are likely to be shared again by a dozen non-members led by top oil producer Russian Federation, which reduced output in tandem with OPEC from January.

Other reports by iNewsToday