Oil extends biggest loss in 3 weeks

Published May 26, 2017

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Johannesburg - Oil extended its biggest loss in three weeks as OPEC’s move

to prolong supply cuts for nine months disappointed investors hoping for more.

Futures fell as much as 1.5 percent in New York after

dropping 4.8 percent on Thursday. The cuts are working and stockpile reductions

will accelerate in the third quarter, with inventories falling to the five-year

average early next year, Saudi Arabia’s Energy Minister Khalid Al-Falih said

after OPEC met in Vienna.

Producers have more tools to further support prices if needed,

Russia’s Energy Minister Alexander Novak said in a Bloomberg television

interview. Oil had climbed back above $51 a barrel after Saudi Arabia and

non-OPEC member Russia rallied support from the Organisation of Petroleum

Exporting Countries and other nations to extend the deal into 2018.

While stubbornly high global inventories have taken longer

than expected to drain, signs that US stockpiles are easing from a record had

added to the optimism.

“What OPEC was trying to solve is not the price of oil as it

would be immediately after the meeting, or as it would be today or next week,

but more so where it will be at the end of the year,” Harry Tchilinguirian, a

commodities analyst at BNP Paribas SA in London, said by phone. The decision

marks “a commitment to a supply strategy, which in combination with the

seasonal swing in demand should bring about the inventory decline that they

promised.”

West Texas Intermediate for July delivery was at $48.57 a

barrel on the New York Mercantile Exchange, down 33 cents, at 1:30 p.m. in

London. Total volume traded was about 84 percent above the 100-day average.

Prices slumped $2.46 to $48.90 on Thursday, the biggest decline since May 4.

WTI is down 3.5 percent this week.

Brent for July settlement was at $51.08 a barrel on the

London-based ICE Futures Europe exchange, 38 cents lower. The contract lost

$2.50, or 4.6 percent, to $51.46 on Thursday. The global benchmark crude traded

at a premium of $2.52 to WTI.

Read also:  Oil trades near one-month low

“Some market participants may have expected a deeper cut, a

longer one, inclusion of more countries, or other such icing on the cake,”

analysts at Barclays Plc including Michael Cohen wrote in a research note. The

selloff “is likely short lived, and we continue to believe that inventory draws

in the coming summer months will be supportive of prices.”

Raising US shale output won’t derail OPEC’s goals and a

nine-month extension will “do the trick,” Al-Falih said Thursday after the

meeting in Vienna. Nigeria and Libya will remain exempt from making cuts and

Iran, which was allowed to increase production under the original accord,

retains the same output target, said Kuwait’s Oil Minister Issam Almarzooq.

OPEC will face the test of defending market share and

generating revenue growth as it transitions from the curbs, Goldman Sachs Group

analysts including Damien Courvalin said in a May 25 report. Backwardation when

near-term crude prices are higher than those for later months will be needed

for the cuts to shrink the glut, and prevent an increase in US shale

production, the bank said.

Oil market news

After sparing its prized US market from oil-output cuts,

Saudi Arabia plans to "markedly" reduce exports to its political ally

in the coming weeks in an effort to reduce swollen and highly visible crude

inventories in the world’s biggest consumer. Global stockpiles will fall in the

second half after OPEC’s extension, Total SA Chief Executive Officer Patrick

Pouyanne told reporters.

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