Oil price dropped further disappointing the investors betting on longer or larger supply curbs after The OPEC and its allies decided to extend the oil cuts for nine more months.
At yesterday’s meeting in Vienna, the Organisation 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% following the announcement and saw further losses this morning.
Analysts said that with Russia and Saudi announcing nine months of extended cuts a week before, the news yesterday was already priced in.
The market had wanted more cuts – which did not come – and hence the sell-off, they added.
They were referring to a statement by Saudi Arabia and Russia earlier in May that a nine months extension to the cut was needed.
Britain’s Barclays bank said the ongoing production cut would result in a drawdown of bloated fuel inventories, but added that OPEC’s goal of bringing stocks down to their five-year average would not be reached within the timeframe of the production cut.
Analysts also said that the OPEC-led production cuts would support a further rise in US output.
They said that the decision in Vienna sends a signal of continued support for oil prices from OPEC which helps US onshore drillers make plans to further increase their production.
US oil production has already risen by 10% since mid-2016 to over 9.3 million bpd, close to the output of top producers Russia and Saudi Arabia.
Goldman Sachs warned that the biggest risk to oil markets was what would happen next year, at the end of the OPEC-led production cut.
With US output rising steadily and OPEC and its allies potentially ramping up production in 2018 to regain lost market share, many traders are already expecting another price slump.
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