OPEC cuts questioned as crude oil prices tumble

Gladys Abbott
May 16, 2017

The slide came a day after the Energy Information Administration (EIA) revealed that US crude stockpiles fell less than expected.

Oil prices fell for the fourth consecutive day on Thursday, touching their lowest since March at just above US$50 a barrel after USA crude inventories fell by less than expected.

Things only fully stabilised when Saudi Arabia's OPEC chief hit the wires in European hours, saying there was a growing consensus among oil pumping countries that they needed to continue to "rebalance" the market. The culprit: crude prices that tumbled from London to NY as traders abandoned faith in an OPEC-led effort to use supply cuts to counteract a persistent shale-fed glut.

Helima Croft, global head of commodity strategy at RBC Capital Markets, cautioned that the market may be reading too much into recent headlines.

"If you look at global risk appetite, equities have been pretty quiet and that feeds into FX as well if carries on and there is a risk switch". Prices dropped $2.41 to $48.38 on Thursday.

As was seen during a slump between 2014 and 2016, they cause major headaches for countries that rely on their revenues.

Oil has not been the only commodity that has suffered this week. July Brent crude LCON7, -2.67% on London's ICE Futures exchange fell 2.7%, or $1.32, to $47.12.

Both benchmarks broke below closely watched technical levels, with USA crude smashing below $47.23.

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"Opec is still showing high compliance with its production cut agreement, as increases in Angola and Nigeria were offset by declines from Libya and Iraq", the report said.

In calmer waters, the euro touched a six-month high of nearly $1.10 ahead of France's weekend election, in which polls now expect centrist Emmanuel Macron to convincingly beat right-wing and anti-euro rival Marine Le Pen. Prices are down 7.1 percent this week, heading for a third weekly decline. World shares hit a record high on Wednesday. "I do think as long as OPEC maintains the cuts, the price will get some stability", Petromatrix analyst Olivier Jakob said.

Davydov added that proceeding from geological exploration data, the USA reserves are not unlimited and the United States oil production is unlikely to go past the best results of the past.

U.S. Treasury yields rose on the jobs data and bets on the Fed's next move.

Gasoline futures fell 3.2% to $1.4851 a gallon, trading at a three-month low.

June WTI is down $1.29 to $44.23/bbl on Nymex at 1:28pm in Singapore; volume traded was more than 350% above 100-day average.

The pound edged up as it emerged the ruling Conservative Party was set for a big win in local polls, weeks before a general election markets hope will provide Prime Minister Theresa May a more stable government going into key Brexit talks. The deterioration in sentiment also carried through to the currency market.

At their intraday lows, Brent and WTI were heading for their largest two-day%age loss since February 2016.

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