Abu Dhabi: Opec’s agreement to extend production cuts for another nine months has so far had a limited impact as oil prices continue to trade below $50 (Dh183.65) per barrel, analysts said.
On May 25, Opec and non-Opec members led by Russia decided to extend the production cut agreement by another nine months till March next year to balance oil markets.
Opec will cut 1.2 million barrels per day whereas non-Opec members would slash output by 558,000 barrels per day as per the agreement reached by oil producing countries in December last year.
“The Opec production extension agreement has not had a favourable outcome in terms of supporting the price of Oil,” FXTM Vice President of Market Research, Jameel Ahmad told Gulf News.
“The aftermath would have been a significant deal worse if no deal had been made, but the reason for the decline in oil since the Opec meeting was most likely because the extension to the production cut had been priced into the outlook of oil for some time before the event,” he said by email.
On Monday, Brent, the international benchmark was trading at 49.03 per barrel, up by 1.83 per cent and the US crude West Texas Intermediate was up by 1.66 per cent to 46.59 per barrel at 4:47pm UAE time.
On the outlook for the oil price over the longer-term, Ahmad said it would depend on what happens with the US shale production, and whether any inventories from the United States offsets the efforts Opec and non-members are making to stabilise prices.
According to the latest report by Baker Hughes, US rig count is up 11 rigs from last week to 927, with oil rigs up 8 to 741, gas rigs up 3 to 185, and miscellaneous rigs unchanged at 1.
Echoing similar views, Ole Hansen, head of commodity strategy at Saxo Bank said Opec’s agreement to extend production cuts for another nine months has so far had a limited impact.
Rising production in US, Libya and Nigeria combined with the current Middle East unrest have so far diverted the focus away from a slowly tightening market, Hansen said.
“As we move into the second half, the impact of Opec and Russia’s efforts should support a mild recovery in the price, potentially back towards $55 for Brent crude,” he said.
“Moving towards 2018, the focus will switch to Opec’s ability in unwinding the deal without flooding the market with unwanted extra supplies. These concerns are likely to keep oil lower for longer with a return back above $60 unlikely until rising demand leaves room for all producers.”
Oil rose on Monday due to predictions by Saudi Arabia and Russia that crude markets will rebalance in the coming months.
Inventories are declining and reductions will accelerate in the next three to four months, Saudi Energy Minister Khalid Al Falih said at a briefing in Kazakhstan with his Russian counterpart, Alexander Novak, according to media reports.
