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OPEC agrees to extend output curbs, but falls short of experts' expectations

29 May 2017

USA crude prices were down 0.84 per cent at $50.93 a barrel even as Organization of the Petroleum Exporting Countries delegates said that the producer group had made a decision to extend cuts to March. Many OPEC members spoke after the meeting of a stabilization of prices in the near-term, however given the current supply and demand fundamentals with the oil market, I don't expect a rebound to 2013 levels anytime soon.

"A nine-month extension of the output cuts is already baked into prices".

"The outcome of the OPEC meeting which was scheduled on 25th May 2017 chose to cut 1.8 million barrels per day through March 2018". Historically, OPEC has played a pivotal role in balancing the market, but the group's market power has become increasingly diluted owing to the emergence of USA shale production.

The cynics among you will spot that these coordinated production cuts are aimed at repairing the massive supply glut that sent our precious crude crashing to unthinkably-low prices a year ago.

"Following the meeting, we have seen both Brent and WTI trading lower on the news as a proportion of the market had priced in the potential for deeper cuts".

As the de facto leader and largest producer of OPEC, Saudi Arabia has cut its production the most of any member of the bloc.

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The problem for OPEC is that while crude sits substantially below the highs of around $100 a barrel reached in 2014, it is high enough to bring back into the market US producers who eased back as prices tumbled a year ago.

He said there has been a "recalibration of costs" since June 2014, when crude prices began plummet. 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 U.S. shale production, the bank said.

On Thursday, crude prices tumbled 5 percent after the decision.

The OPEC alliance faces competition from US shale producers. But stubbornly high fossil fuel inventories - which have been maintained worldwide, but are most readily measured in the USA due to open customs data - have prevented the measures from buttressing oil prices in a lasting way. Rising U.S. production could completely replace OPEC's output cuts of 1.2 million bpd by year-end, according to RBN Energy.

"This is half of the roughly 1,800 million barrels per day taken off the market by the OPEC-led cuts", said the analysis.

"We project that annual average crude oil production in the U.S. and Canada will rise by 1.6m bpd between 2016 and 2018, an offsetting factor for the cuts being made by Opec and its non-Opec partners".

OPEC agrees to extend output curbs, but falls short of experts' expectations