Oil plunges 5 pct on disappointment with OPEC cuts

Andrew Cummings
May 31, 2017

Oil prices have dropped after the Organization of Petroleum Exporting Countries (OPEC) announced plans to extend output cuts by a further nine months.

Oil fell more than 5% on Thursday after a meeting of OPEC and non-OPEC producers ended in an agreement to extend the 1.8 million barrels per day of cuts for an additional nine months.

Both Brent Crude and West Texas Intermdiary were showing marginal signs of recovery this morning, having dipped Thursday evening following OPEC's decision not to deepen the cuts.

Saudi Oil Minister Khalid Al-Falih, who presided over the meeting, said he expected that the extension should reduce high crude inventories to a level corresponding to "the five-year average by the end of the year".

Global benchmark Brent inched about 0.1 percent higher to $51.50, after slumping 4.6 percent overnight. "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".

Baku, Fineko/abc.az. World prices of oil reacted quite suddenly to a 9-month extension (OPEC+) of the Vienna transaction OPEC/NOPEC on freezing of oil production.

Yet he said the wild card for the oil market has been the growth in USA crude production, particularly from shale. There could be some buying after yesterday's big selloffs (we are already noticing some), however, we suspect that the price would decline further towards $46.5 per barrel (WTI) in the short term before next major move. The deal involving Organization of the Petroleum Exporting Countries members and Russian Federation was widely expected by analysts, but disappointed investors who were hoping for a longer extension.

"We considered various scenarios, from six to nine to 12 months, and we even considered options for a higher cut".

Here is an account of what the deal entails for oil producing and consuming nations.

"Next year, we actually think USA oil production won't increase as much because they've increased so much this year", Yergin said.

Professor Kemp said modelling for the North Sea continued to show trends he identified earlier this year - with an increased chance of more projects coming on-stream with $60 oil rather than $50.

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