Oil Prices Drop 5 Percent after OPEC Meeting in Vienna

Marco Green
June 3, 2017

But still, crude oil prices plunged 5% to below $49 a barrel after this week's OPEC meeting, reflecting nerves over the group's strategy.

Saudi Energy Minister Khalid Al-Falih said the decision was the optimal choice following deliberations aimed at rebalancing the market and bringing inventory levels down to five-year average levels, i.e. from current levels of around 3bn barrels to 2.7bn barrels. "All in all, the decision to reduce crude output should logically increase modify global prices".

Oil prices edged up on Friday after tumbling in the previous session when the Organization of the Petroleum Exporting Countries (OPEC) and the other main producers agreed to extend output cuts.

"Chinese demand in addition to US production (including Trump's export policy, ) is probably more critical to oil price formation so is likely keeping oil range-bound, even if the possible range is wide", said S&P Dow Jones Indices in a recent note. The initial agreement would have expired in June this year.

Global benchmark Brent futures were down 37 cents at $51.09 a barrel at 1333 GMT, hitting a daily low of $50.71.

The long-term trajectory for the price of oil seems, at this point in time, to be relatively flat. US shale production requires a higher price to be profitable.Ahead of the meeting, the organization announced that Equatorial Guinea had joined, expanding OPEC membership to 14.

Commerzbank cited data from the US Department of Energy saying US production was roughly 540,000 barrels per day higher in mid-May than at the start of the year.

OPEC could decide to return production to pre-cut levels as the cartel may not want to lose its market share and look to raise revenues through volumetric growth, according to the analysis. Investors are also nervous about increasing crude output from Nigeria and Libya, which are exempt from cutting production as they attempt to restore supplies sidelined by internal conflicts. The coalition of 24 countries making the deal will also likely have difficulty curbing the effect of shale oil production out of the USA and other non-OPEC countries not agreeing to production cuts.

Oil at $50 a barrel has encouraged more USA shale output, since production costs are down from a few years ago.

The latest weekly US oil rig data is due at 1:00 p.m. EDT from energy company Baker Hughes.

With the increase in the prices and production of the shell gas things have become hard for the oil producers, as their efforts to maintain the balance gets slower after this activity.

Other reports by Click Lancashire

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