Oil prices slump but experts see rise to $60 before year end

Share

Energy consultancy Wood Mackenzie predicts that a nine-month extension would result in a 950,000 bpd production increase in the United States, thus undermining OPEC's efforts to balance supply and demand.

In an effort to reduce a global crude oil glut and boost prices, Members of the Organization of Petroleum Exporting Countries and non-OPEC countries, especially Russian Federation, reportedly decided on May 25 to extend cuts in oil production by 1.8 million barrels per day by nine months to March 2018. When unveiled in December, it helped establish a floor under crude oil prices of around $50 per barrel, though that level has come under threat from the subsequent market recovery in North America. "As OPEC cuts and if US 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".

Nigeria yesterday got special concession as the Organisation of Petroleum Exporting Countries (OPEC) reached the much-sought consensus to extend oil output freeze to keep prices high.

The cartel and non-member exporters agreed to extend the existing oil output curbs of around 1.8 million barrels per day (bpd) until the end of the first quarter of 2018.

Global benchmark Brent fell by 0.5% to $51.18 a barrel, while the U.S. crude prices decreased by 0.6% to reach $48.57 a barrel, reported Reuters.

Some analysts and industry observers on Thursday expressed disappointment that the OPEC cuts were not deeper. "We even considered options for higher cuts", he said during the Vienna meeting.

More news: Trump Confident Travel Ban Will Be Upheld

Despite the resulting slower-than-hoped reduction of the global glut, as well as the prospect of rising output from Libya and Nigeria, Falih said that he was not anxious.

Earlier, Saudi Oil Minister Khalid A. Al-Falih spoke of a "9-month straight" extension going into the meeting.

Instead, global oil markets shrugged off the expected news and tumbled.

"OPEC delivered what they said they would, or at least what they flagged they would do", Wayne Gordon, executive director for commodities and forex at UBS Group AG's wealth management unit, said in a Bloomberg television interview. "We have seen a substantial drawdown in inventories that will be accelerated", Falih said.

USD/CAD hit 1.3433 during early USA trade, the session low; the pair subsequently consolidated at 1.3451, shedding 0.24%.

"This is partly because crude had already run higher in anticipation of the deal, partly because some analysts had been hoping for a deeper cut and partly because US shale oil production is surging again, encouraged by crude's advance from its lows under $30 in early 2016", he said.

Share