Oil prices sold off on Thursday, as an agreement among major oil producers to extend a deal to limit output failed to appease investors.
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The Organization of the Petroleum Exporting Countries renewed a deal with other non-OPEC producers to cap production into March 2018 on Thursday, The Wall Street Journal reported, continuing an attempt to mitigate a global supply glut and support oil prices.
However, prices fell to a one-week low as investors remained unimpressed with OPEC's efforts to curb inventories, which have remained elevated despite a similar agreement reached at the end of last year. Light, sweet crude for July delivery lost $2.26, or 4.4%, to $49.10 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell $2.16, or 4%, to $51.80.
"Really it's a let down," said Ric Navy, senior vice president for energy futures at brokerage R.J. O'Brien & Associates LLC. "The market's basically telling them they needed to do more."
Thursday's agreement will extend by nine months a deal made at the end of last year to cut oil production. The news confirmed expectations from analysts and traders, but failed to offer further reasons for optimism.
"The nine months [extension] was already well factored into the market," said Kyle Cooper, a consultant for Ion Energy Group in Houston, who added that some participants were hoping for an increase in the amount of production cut.
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Confidence that OPEC would continue production cuts pushed oil prices to the highest level in over a month this week. But some analysts and investors have begun to doubt the effectiveness of the cartel, as other countries such as the U.S. and Canada have ramped up their own production in response to higher prices.
"The problem was that OPEC had come up with a statement saying they'd do 'anything it takes,' so people were expecting just a little bit more from the meeting," said Nitesh Shah, commodities strategist at ETF Securities, who believes crude is unlikely to go much above $55 this year.
Some market participants are also concerned that the level of compliance among producers will decline later in the year. Donald Morton, senior vice president at Herbert J. Sims & Co., who runs an energy-trading desk, said oil prices will receive little benefit from the deal in the short-term. But if inventories start to decline as hoped, the market should stabilize at the end of 2017 and beginning of 2018, he said.
"There's been very little success in the global picture," Mr. Morton said. Still, "it has the potential to develop into a very significant price stability...if in fact the glut does disappear."
Data from the U.S. Energy Information Administration also put some pressure on oil prices this week, after a smaller-than-expected drop in gasoline renewed concerns over slowing demand for oil products ahead of summer driving season.
Gasoline futures fell 3.1%, to $1.6015 a gallon, and diesel futures fell 3.5%, to $1.5494 a gallon.
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(END) Dow Jones Newswires
May 25, 2017 12:44 ET (16:44 GMT)