Oil prices on the New York and London markets dropped about $2.50/bbl after the Organization of Petroleum Exporting Countries and major non-OPEC producers extended an existing agreement on production targets through first-quarter 2018.
The alliance said it will keep production at about 1.8 million b/d lower than late 2016 production levels in efforts to reduce worldwide oil inventories and support oil prices.
Analysts said investors were disappointed, adding that some market observers wanted additional cuts in the production targets.
“Some market participants may have expected a deeper cut, a longer one, inclusion of more countries, or other such icing on the cake,” said Michael Cohen of Barclays Research in London.
Cohen noted sharp movement in selling of oil contracts for 2018, “possibly reflecting producer selling that may have occurred as they fret over the state of fundamentals next year.”
Cohen said the May 25 price dip was “likely short-lived, and we continue to believe that inventory draws in the coming summer months will be supportive of prices.”
Bhushan Bahree, IHS Markit senior director, said, “OPEC and its partners are hunkering down for an extended price defense. Revenues are what matter to oil exporters and they do not want to see prices drop below $50/bbl, their line in the sand at this time.”
Bahree called the OPEC and non-OPEC alliance “durable,” adding that the 9-month extension demonstrates an understanding between Saudi Arabia and Russia.
Energy prices
The July light, sweet crude contract on NYMEX fell $2.46 on May 25 to close at $48.90/bbl. The August contract dropped $2.45 to settle at $49.14/bbl.
The natural gas price for June fell 2.5¢ to a rounded $3.18/MMbtu. The Henry Hub cash gas price was $3.06/MMbtu, down 5¢.
Heating oil for June dropped 5.5¢ to a rounded $1.55/gal. Reformulated gasoline stock for oxygenate blending for June dropped 4¢ to a rounded $1.61/gal.
The Brent crude contract for July on London’s ICE dropped $2.50 to $51.46/bbl. The August contract was down $2.47 to $51.77/bbl. The June gas oil contract was down $5.85 to $474.50/tonne.
OPEC’s basket of crudes on May 25 settled at $51.24/bbl, down 72¢.
Contact Paula Dittrick at [email protected].
