Both Brent and West Texas Intermediate (WTI) front month contracts shed over 5%, as Opec and 10 non-Opec oil producers, including Russian Federation, chose to extend their collective production cuts of 1.8m barrels per day (bpd) by another nine months to March 2018, following the conclusion of their meeting in Vienna, Austria.
There was some disappointment that deeper production cuts had not been sanctioned and that no more non-OPEC countries had joined in the agreement.
Opec countries and 11 other oil-producing nations, including Russian Federation, first agreed to reduce production last December in an effort to boost flagging prices.
The price of oil was under pressure Thursday morning, despite OPEC members agreeing to extend production cuts meant to support higher prices.
However, the scale of output cut remains the same at 1.8 million barrels a day. Oil markets are going to be grossly oversupplied in 2018 without OPEC action.
OPEC and non-OPEC delegates said joint cuts with non-OPEC were agreed at around 1.8 million bpd, which would see non-OPEC producers again contributing a reduction of under 600,000 bpd.
"We considered various scenarios from six to nine to twelve months and we even considered options for higher cuts". The attacks have hit oil production and damaged pipelines in Nigeria.
OPEC could decide to return production to pre-cut levels as the cartel may not want to lose its market share and look to raise revenues through volumetric growth, according to the analysis.
USA shale output will be reaching 10 MMBPD by the end of decade, Mayor said, adding there are so many opportunities for shale growth in the country and very limited restraints. The extension was supposed to show an unprecedented degree of cooperation between Opec and a group of non-member producers.
"When the prices started down, there was this widespread thinking $70 to $80", said Yergin, who won the Pulitzer Prize for his best-selling book, The Prize: the Epic Quest for Oil, Money, and Power.
Producers have expressed confidence that this plan will bring down crude oil stocks to their five-year average of 2.7 billion barrels. The sell-off "is likely short lived, and we continue to believe that inventory draws in the coming summer months will be supportive of prices", they wrote. "Then, the fourth quarter will get us to where we want". 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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