Oil drops after OPEC-led output cut extension falls below expectations

The Organization of Petroleum Exporting Countries and some non-OPEC producers agreed at a meeting in Vienna on Thursday to extend supply cuts of 1.8 million barrels per day until the end of the first quarter of 2018.

Brent crude oil settled down $2.50, or 4.6 percent at $51.46 a barrel.

It was the biggest percentage decline for both benchmarks since March 8th.

A day after OPEC announced its decision, crude prices were still on the defensive prompting a general move away from riskier assets.

As quoted in the Independent, Roger Diwan, an expert from IHS Markit, said: "OPEC is settling in for the long haul..."

"There was hope that there would be half a million extra barrels coming off", said Robert Yawger, director of energy futures at Mizuho Americas. Despite the OPEC deal, we still do not see the strong drive that might lead price to rocket.

Spot gold was biased to test a resistance at $1,264/oz, a break below which could lead to a gain to the next resistance at $1,276, said Reuters technical analyst Wang Tao.

The real problem is that OPEC's oil cap wasn't cutting into global oil inventories quickly enough. Futures markets activity shows a reduced expectation for the market to balance.

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But the news that the cuts will be extending for nine months past the end of June has sent the price of oil tumbling.

"OPEC agreeing to nine months without deeper cuts leaves prices at the mercy of inventories and USA production and demand", said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

"Officials from 24 countries deemed it appropriate to extend the deal for nine months as the six-month period does not fully cover the winter season, when prices change frequently", he explained.

The cartel next meets in November.

"The precious metals group did well to hold up as well as it did on Thursday given new highs set by the USA stock market, a generally firmer dollar and an imploding crude oil market", INTL FCStone analyst Edward Meir said in a note. That has had a growing effect on global supplies. OPEC and other oil producing countries are trying hard to maintain the balance and increase the oil prices in the commodity market but can not manage efficiently to do so. "It becomes so efficient that it can make money at sub $50 oil", said Curt Taylor, president of consulting firm Opportune LLP's Ralph E. Davis Associates in Houston.

"In line with the decision taken at its 171st meeting, the conference chose to extend its production adjustments for a further period of nine months, with effect from July 1, 2017", the statement read.

Not only did Opec underwhelm the market, many commentators believe curtailment of the cartel's output will be matched by further increases in USA shale production, with the headline output stateside tipped to rise to 10m bpd.


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