Crude oil prices plunge sharply on Thursday

Jay Anderson
June 3, 2017

Ahead of a meeting in Vienna, Brent crude rose 55 cents to $54.55 a barrel, where non-member oil producers and OPEC chose to extend output cuts possibly for 12 months.

Otherwise, oil's weakness was the standout feature of Friday's markets. But any uptick in prices may be modest and temporary.

Going forward, Nizam Hamid, European ETF strategist at WisdomTree said: "With supply side dynamics undergoing a fundamental shift [thanks to the impact of U.S. shale], only decisive action from Opec will boost prices from current levels, and so far investors have not been satisfied that Opec is tackling the issue aggressively enough".

This has seen crude oil prices more than halve in the past three years.

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. Investors hoped that the alliance would have gone further by extending the cut for a longer period. This is why Saudi cargoes to the recent months have totaled 1.21 million barrels a day - the highest rates since 2014, the year of the oil price crash. A further 8 United States oil rigs were added last week, bringing the total count up to 720, the most since April 2015, and it is very likely this trend will continue at current oil prices.

Here is an account of what the deal entails for oil producing and consuming nations.

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Tamar Essner, director of energy and utilities at Nasdaq Corporate Solutions, said that the countries that had agreed to the cut had complied by easing production but continued to export at high levels from existing inventories.

Non-OPEC producers led by Russian Federation, which is participating in the current output cut, also agreed here to join the extension till next March.

Despite oil's negative reaction to the OPEC production cut extension, prices should grind higher into the $60s by the fourth quarter, RBC's Helima Croft told CNBC on Thursday.

However, the scale of output cut remains the same at 1.8 million barrels a day.

On the other hand, India, the third largest consumer of oil, is contemplating importing oil from U.S. and Canada if OPEC countries continue the output cut.

"OPEC announced it would extend cuts in oil output by nine months to March 2018 on Thursday, after November's landmark deal failed to clear a global supply overhang", reported CNBC.

Other reports by BadHub

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