Oil Tumbles as OPEC Cuts Disappoint
26 May 2017 - 7:37AM
Dow Jones News
By Stephanie Yang and Alison Sider
Oil prices plunged nearly 5% after OPEC's announcement of
extending production cuts disappointed some traders who had hoped
for a more aggressive plan for boosting crude prices.
The market's negative reaction, the biggest one-day decline in
three weeks, took many by surprise because the cartel did what its
leaders suggested it would do before their meeting Thursday in
Vienna.
The Organization of the Petroleum Exporting Countries extended a
deal with 10 other major oil producers that will cap production
into March 2018, continuing an attempt to reduce a global supply
glut and boost oil prices.
Oil prices had begun to climb last week after Russia and Saudi
Arabia announced that they favored a nine-month extension, hitting
a one-month high on Tuesday. Previously, OPEC had only said it
would consider extending its agreement by six months.
But by signaling its willingness to commit to a longer cut, OPEC
may have unintentionally raised expectations even higher, some
investors said.
Some analysts over the past week suggested that OPEC could agree
to reduce output further, bring in smaller producers like Egypt
that sat out the first round of cuts or extend the cuts for a full
year.
"The anticipation of deeper cuts started to disseminate into
investor thought, that it was only deeper cuts that would take us
higher," said Chris Kettenmann, chief energy strategist at Macro
Risk Advisors.
Oil prices fell to a one-week low following the Thursday
meeting. Light, sweet crude for July delivery lost $2.46, or 4.8%,
to $48.90 a barrel.
OPEC comments may have also bolstered expectations that major
producers would strike a more dramatic deal, even though few cartel
officials publicly predicted any of those things were likely to
come to pass.
Iraq Oil Minister Jabbar al-Lueibi said there were three or four
options to discuss at Thursday's meeting. Some, including Russian
Energy Minister Alexander Novak, suggested 12 months of cuts were
being considered. Earlier this month, Saudi Arabia's oil minister
said producers would do "whatever it takes" to rebalance the
market.
"Those kinds of reports or whether or not they were founded, get
people excited," said Nick Koutsoftas, a portfolio manager with
Cohen & Steers.
Other analysts suggested that the steep price declines reflected
the rapid unwinding of a bullish bet. Oil prices had closed higher
on 11 of the previous 14 trading days before Thursday.
While many investors said they were reluctant to bet against oil
prices falling ahead of the meeting, they rushed to get out after
they sensed that momentum had shifted violently to the down
side.
Energy stocks started the trading day by rising sharply, but
they began to tumble as the price of crude fell. By midafternoon,
many oil explorers had lost more than 4%. Marathon Oil Corp. was
down 6.5% and ConocoPhillips fell 3.7%. Drilling rig owners, such
as Nabors Industries Ltd. and Ensco PLC, were both down 8.8%.
--Ryan Dezember and Sarah McFarlane contributed to this
article.
Write to Stephanie Yang at stephanie.yang@wsj.com and Alison
Sider at alison.sider@wsj.com
(END) Dow Jones Newswires
May 25, 2017 17:22 ET (21:22 GMT)
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