Oil drops after OPEC-led output cut extension
Oil prices edged up on Friday but markets remained on the back foot after tumbling in the previous session when OPEC and allied producers extended output cuts but disappointed investors betting on longer or larger curbs.
At Thursday’s meeting in Vienna, the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers agreed to extend a pledge to cut around 1.8 million barrels per day (bpd) until the end of the first quarter of 2018. The initial agreement would have expired in June this year.
Crude oil plunged 5 percent following the announcement, only inching up a touch on Friday.
Gaining back some of those losses, Brent crude futures LCOc1 were at $51.83 per barrel at 0708 GMT, up 0.37 cents, or 0.7 percent, from their last close.
U.S. West Texas Intermediate (WTI) crude futures CLc1 were below $50, at $49.15, though still up 16 cents from their last close.
Despite these gains, analysts said markets were on the back foot.
“With Russia and Saudi announcing nine months (of extended cuts) a week before, this was already priced in, so the market wanted the “over-and-above” which didn’t come – hence the sell-off,” said Virendra Chauhan, oil analyst at Energy Aspects in Singapore, referring to a statement by Saudi Arabia and Russia earlier in May that a nine-month extension to the cut was needed.
“With continued production out of the U.S. and, crucially, falling costs from producers in the rest of the world, OPEC’s great hope is that demand will grow fast enough to absorb its eventual resumption of supplies. With soft demand figures globally, that hope is fading nightly,” Dutch bank ING said.