OPEC disappointment hits oil, stocks; sterling down on United Kingdom vote jitters

Elias Hubbard
May 27, 2017

"We fully support nine months.it will have more impact on market stability and prices".

Crude prices plunged 5 per cent after the decision as some had priced in more aggressive output cuts.

After opening sharply lower, US crude rose 0.67 percent to $49.22 per barrel and Brent was last up 0.43 percent at $51.68 on the day.

USA producers have become a key alternative source of supply as their output - largely due to shale oil - has soared by 10 percent since mid-2016 to 9.3 million bpd, close to Saudi Arabia's and Russia's levels. "With soft demand figures globally, that hope is fading nightly", Dutch bank ING said. That will be welcome news to consumers and energy-hungry businesses worldwide but could continue to strain the budgets of some of the more economically troubled oil-producing nations, such as Venezuela and Brazil.

The OPEC has extended cuts in oil output by nine months until March 2018 to further battle a global glut of crude.

The two sides chose to remove about 1.8 million barrels per day (bpd) from the market in the first half of 2017 - equal to 2 percent of global production, taking October 2016 as the baseline month for reductions.

"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 U.S. shale oil production is surging again, encouraged by crude's advance from its lows under $30 in early 2016", he said.

Analysts criticized OPEC for failing to slash oil production which led to the falling prices of oil.

Those two factors caused oil futures traders to bid oil prices down on news of higher oil production numbers.

CFTC data showed that in the week ahead of the Opec meeting, hedge funds raised bullish bets on USA crude for the first time in five weeks.

Russian Federation maintains its oil-price outlook at $50 to $60 a barrel on average for this year, Novak said.

Investors were hoping for deeper cuts at the OPEC gathering in Vienna yesterday that also included some non-OPEC producers.

"Over and above extending, we need to continue to engage; we need to find a way to stabilise global oil price, otherwise everybody will lose out", the minister added. "This meeting is more about forestalling an oil price collapse than driving prices higher".

British stock markets, however, bucked the trend and hit record highs, with a selloff in sterling seen boding well for exporters.

The start of USA summer driving season, marked by the Memorial Day holiday on Monday, should be supportive with the number of Americans on the road this weekend forecast to hit a 12-year high this year, fueled by a growing economy and relatively low gasoline prices. "Hopefully the market is saved by the USA driver this Memorial weekend". This came in the wake of the OPEC's November 30 decision to cut output by 1.2 million bpd for six months effective from January 1.

Other reports by Click Lancashire

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