Oil Rebounds Slightly After Disappointing OPEC Meeting
OPEC, other producers extend production cut to March 2018; output controls could be extended to 2019.
Oil prices edged back up on Friday after a 5 percent fall in the previous session on disappointment that an OPEC-led decision to extend current production curbs did not go deeper.
At Thursday's meeting in Vienna the Organization of the Petroleum Exporting Countries and some non-OPEC producers agreed to extend a pledge to cut around 1.8 million barrels per day (bpd) of output until the end of the first quarter of 2018. The initial agreement would have expired next month.
Producers have expressed confidence that this plan will bring down crude oil stocks to their five-year average of 2.7 billion barrels but the market had hoped for a last-minute agreement on more far-reaching action.
"The problem is that investors look at the impact today, while OPEC focuses on reaching stability in the coming six to nine months, so the long squeeze yesterday was overdone a bit," said Hans van Cleef, senior energy economist at ABN Amro.
Clawing back some of Thursday's losses, global benchmark Brent futures were up 17 cents at $51.63 a barrel at 1103 GMT.
U.S. West Texas Intermediate (WTI) crude futures remained below $50, at $49.05, though up 15 cents from their last close.
"The front of the curve declined the most, which at least for now implies that the market doesn't quite believe that a tightening and/or backwardation is really coming," said analysts at JBC Energy.
Concerns remain that OPEC-led production cuts will only stimulate a further rise in output from the United States, where producers can operate at much lower costs.
Ann-Louise Hittle, vice president at energy consultancy Wood Mackenzie said the decision in Vienna sent a signal of continued support for oil prices from OPEC which helped U.S. onshore drillers make plans to further raise their production.
U.S. oil production <C-OUT-T-EIA> has already risen by 10 percent since mid-2016 to over 9.3 million bpd, close to the output of top producers Russia and Saudi Arabia.
With U.S. output rising steadily and OPEC and its allies potentially raising production in 2018 to regain lost market share, many traders, including Goldman Sachs, already expect another price slump.
Other assessments pointed to the possibility of output cuts being extended into 2019 in order to bring down both crude oil and refined product stocks.
"Output controls will eventually be extended at least until the end of 2018, and more likely than not into 2019 ... At this pace, it will not be until at least the end of 2018, or indeed, 2019, when surplus inventories can be eliminated," said analysts at Deutsche Bank.
By Karolin Schaps
