Oil slips further on disappointing OPEC meeting outcome

A pumpjack brings oil to the surface in the Monterey Shale, California. (File photo: Reuters)

Oil prices slipped further on Friday following an OPEC-led decision to extend current production curbs that investors gauged did not go far enough to reduce a global supply glut.

At Thursday's meeting in Vienna the Organization of the Petroleum Exporting Countries and some non-OPEC producers agreed to extend a pledge to cut around 1.8 million barrels per day (bpd) of output until the end of the first quarter of 2018. The initial agreement would have expired next month.

Producers have expressed confidence that this plan will bring down crude oil stocks to their five-year average of 2.7 billion barrels but the market had hoped for a last-minute agreement on more far-reaching action.

Crude prices tumbled 5 percent following the decision on Thursday and extended losses on Friday.

“Expectations had become so high that the mere extension of the status quo by nine months resulted in disappointment,” said analysts at Commerzbank.

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

US West Texas Intermediate (WTI) crude futures traded at $48.59 a barrel, down 31 cents day on the day. Its intra-day low was $48.18.

Colin Smith, director of oil and gas research at Panmure Gordon, said another bearish factor influencing prices was the potential restart of Nigeria's Forcados pipeline system, adding to the oversupplied market.

“This could add around 200,000 barrels a day to OPEC supply straight off the bat.”

The governor of Nigeria's southern Imo state said on Thursday the Forcados terminal would resume operations “soon”. It has been closed for all but a few weeks since a militant attack in early 2016.  

Rising US output 

Concerns also remain that OPEC-led production cuts will only stimulate a further rise in output from the United States, where producers can operate at much lower costs.

Ann-Louise Hittle, vice president at energy consultancy Wood Mackenzie said the decision in Vienna sent a signal of continued support for oil prices from OPEC which helped US onshore drillers make plans to further raise their production.

US oil production has already risen by 10 percent since mid-2016 to over 9.3 million bpd, close to the output of top producers Russia and Saudi Arabia.

With US output rising steadily and OPEC and its allies potentially raising production in 2018 to regain lost market share, many traders, including Goldman Sachs, already expect another price slump.

Other assessments pointed to the possibility of output cuts being extended into 2019 in order to bring down both crude oil and refined product stocks.

“Output controls will eventually be extended at least until the end of 2018, and more likely than not into 2019 ... At this pace, it will not be until at least the end of 2018, or indeed, 2019, when surplus inventories can be eliminated,” said analysts at Deutsche Bank.

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Last Update: Wednesday, 20 May 2020 KSA 09:54 - GMT 06:54
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