An oil rig drilling a well at sunrise near Midland, TexasThomson Reuters
LONDON – The oil market on Friday struggled to recover from a 5% plunge in prices following weaker than expected action from the OPEC group of countries.
OPEC countries agreed to extend a policy to cut around 1.8 million barrels per day (bpd) until the end of March 2018, extending a deal that would have expired in June this year.
Crude oil prices fell 5% after the announcement, which disappointed a market hoping for deeper production cuts.
Prices edged higher by 0.35% to $48.88 in early trading on Friday.
The agreement would not have come as a surprise to all. Earlier in May both Saudi Arabia and Russia, which is not a member of OPEC but is seen as a critical part of any potential agreement, said they backed extending the production cuts until March 2018.
“The negative oil reaction to a 9-month OPEC production cut extension is a prime example of ‘buy the rumour, sell the fact’. With nine months having become the baseline – prices +17% in the run-up, hoping for longer and maybe even deeper cuts – potential for an upside surprise was already limited,” Mike van Dulken at Accendo Markets said in an emailed statement.
“If anything, the simple extension begs questions about what happens next March and what OPEC’s long-term strategy is for combating rising US production and a prolonged global supply glut, to get prices back above $60,” he said.
Here is how West Texas Intermediate crude, the US benchmark, looks at about 8.00 a.m. BST (3.00 a.m. ET):