Crude Slumps Below $50 as Market Is Underwhelmed by OPEC DealBy
Nine-month extension will probably ‘do the trick’: Al-Falih
Libya, Nigeria to remain exempt from production curbs
Oil fell below $50 after OPEC stuck to the most predictable outcome at a meeting in Vienna.
Futures closed 4.8 percent lower in New York as the Saudi Arabian-led group and its allies delivered only what had already been telegraphed for days: an agreement to extend output cuts for nine months, without deepening them or saying what will happen after March 2018.
"The Saudis have been trying to put a happy face on this thing," said John Kilduff, a partner at Again Capital, a New York-based hedge fund that focuses on energy. "But this is all they could get, and that’s disappointing to the market."
Oil has rebounded from its plunge below $44 a barrel earlier this month as U.S. stockpiles -- one of the most critical indicators of the global supply glut -- have fallen for the past seven weeks. But the inventories remain stubbornly above a five-year average as shale drillers add rigs every week and American production keeps rising.
At a press conference in Vienna, Saudi Arabia’s Energy Minister Khalid Al-Falih said he hopes U.S. shale producers will moderate their growth. He said he sees no conflict between OPEC and shale, noting that oil demand growth is picking up.
West Texas Intermediate for July delivery fell $2.46 to settle at $48.90 a barrel on the New York Mercantile Exchange. Total volume traded was 70 percent above the 100-day average.
Brent for July settlement slipped $2.50 to $51.46 a barrel on the London-based ICE Futures Europe exchange.
Russian Energy Minister Alexander Novak said that there’s not much concern about today’s crude price fall, and sees oil averaging $55 to $60 a barrel this year. Al-Falih also downplayed the drop, saying he doesn’t worry about the market’s "knee-jerk reactions."
But the nine-month extension was already priced into the market, so investors need to know what OPEC’s strategy is afterward, said Ebele Kemery, head of energy investing at JPMorgan, on Bloomberg TV.
"To get price stability, we need to know what the endgame is," she said, alluding to a forecast of oversupply in 2018. Without "clear messaging around an exit strategy," market volatility will continue, Kemery said.
The curbs are working, and prolonging the deal through March will "do the trick," Al-Falih said before the meeting. The Organization of Petroleum Exporting Countries will empower its monitoring committee to recommend "further interventions" if needed, Al-Falih said. Libya and Nigeria, which have boosted output since the curbs started in January, will continue to be exempt from production cuts, he said.
"It’s all gone as expected," Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by telephone. "This is a rollover of existing cuts with no changes, so it makes sense to stick to your positions."
Oil market news:
- The market is disappointed OPEC didn’t take more convincing action, but the price slump is temporary, says ABN Amro senior oil economist Hans Van Cleef.
- Russia is fully meeting its pledges in cuts deal with OPEC, Novak tells news conference after meeting in Vienna.
- Saudi Arabia to ship less oil in the summer, and flows to the U.S. will drop "markedly," Al-Falih says at conference in Vienna.