Energy shares lead world stock losses on volatile oil price

Cornelia Mascio
Mag 6, 2017

In less than 10 minutes on Friday, futures slumped more than $1 amid a surge in volume.

Oil prices rebounded from five-month lows today following assurances by Saudi Arabia that Russian Federation is ready to join Opec in extending supply cuts to reduce a persistent glut. After almost eight hours of subsequently steady trading, prices started to slightly ease before slumping shortly after 11 p.m.

"There's a lot of option-related activities so as the market falls through $45, the holders of short, put positions need to hedge", said Mark Keenan, head of Asia commodities research at Societe Generale SA. He estimated price could drop another dollar or two before staging a mild rebound.

"Opec has been looking down the barrel so to speak, of resurgent supply from Nigeria and Libya amongst Opec and of course, American shale which combined have completely offset the 1.8 million barrel per day production cut agreement", said Jeffrey Halley, senior market analyst at OANDA, in a note.

Brent crude fell 1.8% at $47.49 a barrel, while United States crude dropped 2.1% to $44.58 a barrel.

Nymex reformulated gasoline blendstock for June was down 1.5% at $1.4579 a gallon, while June diesel dropped 1.6% to $1.3869 and ICE May gasoil skidded 2.5% to $415.50 a metric ton.

OPEC on November 30, 2016 agreed on its first limit on oil output since 2008, a deal supported by some non-OPEC members, including Russian Federation and Oman.

The explosion in US shale oil output over the past decade has reshaped the global energy landscape, catapulting America to the upper echelon of the list of global producers.

Brent crude prices have plunged more than 16% since recent highs of 58 USA dollars per barrel (£44.83) in January, when enthusiasm for the Opec oil cuts - meant to tackle an overabundance of supply and help boost prices - reached a fever pitch. "I wouldn't be surprised to see a (price) recovery. before the meeting".

The concern over rising global supply and stubbornly high inventories effectively wiped out most of the gains made since OPEC announced its first supply cut in eight years. The pressing question is for how long and who is on board.

The landmark OPEC agreement, the cartel's first cut since 2008, initially sent oil bulls into a frenzy.

Some of the struggles of oil and the energy sector this year can be pinned on investors' concerns regarding the ability of major oil-producing nations, including the Organization of Petroleum Exporting Countries (OPEC), to effectively reduce production.

And shale production could also take a hit if OPEC and its allies decide not to extend their production deal.

Russia's non-committal stance is also an irritant. It remains to be seen if Russian Federation will back an extension. Already, there are signs that stockpiles in developed economies declined in April. They have collapsed 10.5 percent this week, sliding to the lowest since November 15 - two weeks before the Organization of Petroleum Exporting Countries signed a six-month deal to curb production aimed at easing a global glut.

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