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.
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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.
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"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.
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(END) Dow Jones Newswires
May 25, 2017 17:22 ET (21:22 GMT)