Oil prices tumbled 5 percent on Thursday as the extension of output curbs by OPEC and other producing countries disappointed investors who had hoped for larger cuts, leading to the biggest daily percentage slide in crude prices since early March.
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At Thursday's meeting in Vienna, the Organization of the Petroleum Exporting Countries and some non-OPEC producers agreed to extend supply cuts of 1.8 million barrels per day (bpd) until the end of the first quarter of 2018.
Brent crude oil
It was the biggest percentage decline for both benchmarks since March 8th. Since then, trading has been volatile.
While OPEC's move Thursday had been expected, some oil market investors had hoped producers would agree to longer or deeper cuts to drain a global glut of crude supplies. OPEC's move was greeted by a sell-off. The day's volumes of 1.1 million contracts of WTI were the highest since the Nov. 30 session, when OPEC first announced cuts.
"There was hope that there would be half a million extra barrels coming off," said Robert Yawger, director of energy futures at Mizuho Americas. He said the rally in recent days left few buyers to support futures once prices started to fall.
"Today the bottom evaporated from the market," he said.
The global crude glut has persisted even after OPEC agreed to cut production in the first half of the year. Futures markets activity shows a reduced expectation for the market to balance.
“I don’t think the cuts are enough for (OPEC) to reach their goal in a nine month period and this is reflecting that," said James Williams, president of WTRG Economics in London, Arkansas.
Saudi Arabia's energy minister, Khalid al-Falih, said fellow ministers did not see a need to reduce oil output further.
"We considered various scenarios, from six to nine to 12 months, and we even considered options for a higher cut. But all indications discovered that a nine-month extension is the optimum," he said.
The cartel next meets in November.
Oil at $50 a barrel has encouraged more U.S. shale output, since production costs are down from a few years ago. That has had a growing effect on global supplies.
"The U.S. shale producer does what everyone thought was impossible. It becomes so efficient that it can make money at sub $50 oil," said Curt Taylor, president of consulting firm Opportune LLP’s Ralph E. Davis Associates in Houston.
U.S. oil production
David Arrington, president of shale oil producer Arrington Oil & Gas in Midland, Texas, said that how U.S. producers respond in coming months will have as much of an effect on pricing as OPEC’s cuts.
“If U.S. shale producers exceeded our projected increases, it’ll drive the price down again,” Arrington said.
(Additional reporting by Gary McWilliams in Houston, Christopher Johnson in London, Henning Gloystein in Singapore; Editing by Marguerita Choy, Edmund Blair)