OPEC output cuts falls short of expectations: Angel Commodities Broking

Andrew Cummings
May 28, 2017

In early December, oil producers outside OPEC, led by Russian Federation, agreed to reduce output by 558,000 barrels per day (bpd). The cuts are working and stockpile reductions will accelerate in the third quarter, with inventories falling to the five-year average early next year, Saudi Arabia's Energy Minister Khalid Al-Falih said after OPEC met in Vienna.

After sparing its prized USA market from oil-output cuts, Saudi Arabia plans to "markedly" reduce exports to its political ally in the coming weeks in an effort to reduce swollen and highly visible crude inventories in the world's biggest consumer.

Rats said that's not how the cuts have played out because US producers, which don't participate in the agreement, have "responded by reactivating a staggering 246 rigs since November 2016-a more than 50% increase in the oil-directed rig count". A further 8 United States oil rigs were added last week, bringing the total count up to 720, the most since April 2015, and it is very likely this trend will continue at current oil prices.

Oil prices dropped more than 4 percent as the market had been hoping oil producers could reach a last-minute deal to deepen the cuts or extend them further, until mid-2018.

Brent crude futures were at $51.09 per barrel at 0348 GMT, down 37 cents, or 0.7 percent, from their last close.

The oil market on Friday struggled to recover from a 5% plunge in prices following weaker than expected action from the OPEC group of countries.

The Indian basket, comprising 73 per cent sour-grade Dubai and Oman crudes, and the balance in sweet-grade Brent, closed trade on Wednesday at $53.28 for a barrel of 159 litres, which was higher than the previous day's close at $52.64.

"There are number of oil market variables which could play out over the course of the second half of the year".

In stock-specific action, the energy firms took a hit on Friday after crude prices fell nearly 5 percent the previous day after the OPEC disappointment.

"OPEC agreeing to nine months without deeper cuts leaves prices at the mercy of inventories and US production and demand", said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

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

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