So much for an extension of the OPEC production cap to next March – global prices fell by more than 4% overnight Thursday in the wake of the announcement of the deal.
Traders thought there should have been a 12 month extension and are worried that the organisation has lost its ability to influence prices, so prices fell sharply and continued easing in early Asian dealings Friday morning.
The sell off wiped out the recent gains for oil that had seen prices move back over$US50 for US crude and past $US54 for Brent.
As a result July West Texas Intermediate crude futures dropped $US2.46, or 4.8%, to settle at $US 48.90 a barrel in New York —the lowest settlement since May 16, and kept falling in after hours trading t be down more than 5% at 7am Friday in early Asian trading.
Earlier, July Brent crude futures dropped $US2.50, or 4.6%, to end at $US51.46 a barrel in London, which was also the lowest finish since mid-May and traded lower in early Asian dealings.
Meetings of now 14 countries led by Saudi Arabia and Russia was quick to agree to the nine month extension at the Vienna meeting overnight. As a result the 1.8 million barrel-a-day supply cut will now last until March 2018.
Thirteen OPEC members agreed to cut collective production of 1.2 million barrels a day. Non-OPEC producers, including Russia, also agreed to cut their output by another, roughly 600,000 barrels a day. The reductions were implemented at the start of this year and set to end on June 30.
OPEC members Libya and Nigeria remain exempt from the cuts and OPEC on Thursday added Equatorial Guinea as a new member—lifting its membership to 14 nations.
Before the meeting of Opec ministers in Vienna, Saudi Arabia’s energy minister Khalid al Falih said it was “highly likely” the existing deal would be rolled over.
The cartel has discussed a potential “9 + 3” plan, which would give them the option of extending the deal for another quarter after the new nine-month cap expires, according to ministers. But that was not enough to stop the slide in oil prices as traders realised the cuts had failed to fully support rices above $US50 a barrel.
Even that US oil stocks slid for a seventh week in a row (Inventories fell by 4.4 million barrels in the week ended May 19), US production rose again to 9.320 million barrels a day – 553,000 above the level of a ear ago, which is the major price concern.
At 516.3 million barrels US crude stocks remain at historically high levels.
