Oil languishes after OPEC fails to deepen supply cuts, Asia stocks retreat

Oil languishes after OPEC fails to deepen supply cuts, Asia stocks retreat

Oil languishes after OPEC fails to deepen supply cuts, Asia stocks retreat

Despite an OPEC decision to extend output cuts by nine months to March 2018 by rolling over a six-month deal to remove 1.8 million barrels a day from the market, oil prices fell by nearly 4% on Thursday. Crude oil prices were trending higher ahead of Thursday's meeting in Vienna and the USA shale oil sector was responding, reaching 9.3 million barrels per day last week, up 5.8 percent year-on-year. Beyond bloated inventories, one of the main reasons markets have not tightened more has been USA oil production, which has soared more than 10 percent since mid-2016 to 9.3 million bpd.

The move, which was then ratified by non-OPEC producers, was the base-case scenario for the market and means the 1.8 million barrel per day supply cut will roll over until the first-quarter of 2018.

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The next meeting of OPEC and non-OPEC oil producers is schedule 30 November. A continuation of the earlier level of cuts was perhaps the minimum they were expecting.

Thursday's decision by the Organization of the Petroleum Exporting Countries - now at 14 members with the entry of Equatorial Guinea - and 10 other countries led by Russian Federation, means that the reductions of 1.8 million barrels a day agreed on in November will stay in place until March.

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"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. Historically, OPEC has played a pivotal role in balancing the market, but the group's market power has become increasingly diluted owing to the emergence of USA shale production. "But all indications discovered that a nine-month extension is the optimum", he said. U.S. shale production requires a higher price to be profitable.Ahead of the meeting, the organization announced that Equatorial Guinea had joined, expanding OPEC membership to 14. The Organization of Petroleum Exporting Countries - a cartel of major oil producers - extended the deal that started in January to address the global supply glut that has subdued prices.

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The price of Brent crude has since recovered slightly but is still trading over 3.5% down. Kazakhstan, Mexico and Azerbaijan are among the larger non-member contributors and the deal, Bahree said, underscores the strength of the relationship between OPEC and other producers.

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