Oil prices back in the $40s, sink to 5-month low

Cornelia Mascio
Mag 6, 2017

Oil prices were hovering at near five-month lows on Friday, after comments from the Kremlin suggesting indecision over whether to extend production cuts sent crude tumbling overnight.

At the time of publishing, global benchmark Brent crude was trading 0.72 per cent higher at $48.73 a barrel, while West Texas Intermediate (WTI) prices were 0.44 per cent higher at $45.72 a barrel.

"Persistent growth in U.S. oil production. will also make extensions of the Opec cap beyond 2017 unlikely".

These large drops put crude back to levels last seen before the OPEC and other producers including Russian Federation said they would cut output by nearly 1.8 million barrels per day (bpd) during the first half of the year in a bid to tighten the market and prop up prices.

While OPEC is cutting back to alleviate price pressures, USA fracking companies could jump to capitalize on the windfall as crude oil prices jump back above $50 per barrel - according to some estimates, shale oil producers can get by with oil at just over $50 per barrel due to advancements in technology and drilling techniques that have helped cut down costs.

On the New York Mercantile Exchange crude futures for June delivery added 70 cents to settle at $46.22 a barrel, while on London's Intercontinental Exchange, Brent gained 81 cents to trade at $49.17 a barrel.

Impacted heavily by militancy over the a year ago, Nigeria and Libya are exempt from the production deal, which led some OPEC watchers, according to Platts, to doubt the effectiveness of the agreement, if production from the two countries were to recover and offset any cuts. Russian Federation is said to support prolonging the curbs, according to a government official.

There's a sense of "dejection" in the market that the cuts aren't working, but OPEC can still succeed if it stays the course, according to Energy Aspects Ltd. Under the pact, OPEC had agreed to cap output at 32.5 million barrels a day.

"Both Brent and WTI futures are down about 17% so far this year despite Opec efforts to support prices".

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.

Big commodity price drops do not just have have an immediate impact on financial markets either.

The Saudi OPEC governor was speaking by telephone from Vienna where he is attending a meeting of OPEC's governing board along with his counterparts from the 13-country OPEC - which accounts for a third of global oil production. The UAE, also under pressure from fellow OPEC members to come into compliance with its quota, lowered production slightly to 2.84 million barrels per day, down 10,000 barrels per day from March, the survey found.

Brent traded volumes on Thursday reached an all-time high of almost 542,000 contracts suggesting hedge funds had accelerated cuts in their long positions.

"There's a lot of option-related activities so as the market falls through US$45, the holders of short, put positions need to hedge", Societe Generale SA head of Asia commodities research Mark Keenan said.

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