Oil extended its biggest loss in three weeks as OPEC’s move to prolong supply cuts for nine months disappointed investors hoping for more.
Futures on Friday fell as much as 1.5 percent in New York after dropping 4.8 percent on Thursday.
The cuts are working and stockpile reductions will accelerate in the third quarter, with inventories falling to the five-year average early next year, Saudi Arabian Minister of Energy, Industry and Mineral Resources Khalid al-Falih said after OPEC met in Vienna.
Producers have more tools to further support prices if needed, Russian Minister of Energy Alexander Novak said in a Bloomberg Television interview.
Oil had climbed back above US$51 per barrel after Saudi Arabia and non-OPEC member Russia rallied support from the group and other nations to extend the deal into next year. While stubbornly high global inventories have taken longer than expected to drain, signs that US stockpiles are easing from a record had added to the optimism.
“What OPEC was trying to solve is not the price of oil as it would be immediately after the meeting, or as it would be today or next week, but more so where it will be at the end of the year,” London-based BNP Paribas SA commodities analyst Harry Tchilinguirian said by telephone.
The decision marks “a commitment to a supply strategy, which in combination with the seasonal swing in demand should bring about the inventory decline that they promised,” he added.
West Texas Intermediate for July delivery was at US$48.57 per barrel on the New York Mercantile Exchange, down US$0.33, at 1:30pm in London on Friday. Total volume traded was about 84 percent above the 100-day average.
Prices on Thursday slumped US$2.46 to US$48.90, the biggest decline since May 4.
West Texas Intermediate was down 3.5 percent last week.
Brent for July settlement was at US$51.08 per barrel on the London-based ICE Futures Europe exchange, US$0.38 lower.
The contract on Thursday lost US$2.50, or 4.6 percent, to US$51.46.
The global benchmark crude traded at a premium of US$2.52 to West Texas Intermediate.
“Some market participants may have expected either a deeper cut, a longer one, inclusion of more countries, or other such icing on the cake,” analysts at Barclays PLC, including Michael Cohen, wrote in a research note.
The sell-off “is likely short lived, and we continue to believe that inventory draws in the coming summer months will be supportive of prices,” they added.
Rising US shale output will not derail OPEC’s goals and a nine-month extension will “do the trick,” al-Falih said.
Nigeria and Libya are to remain exempt from making cuts and Iran, which was allowed to increase production under the original accord, retains the same output target, Kuwaiti Minister of Oil, Electricity and Water Essam al-Marzooq said.
OPEC will face the test of defending market share and generating revenue growth as it transitions from the curbs, Goldman Sachs Group Inc analysts, including Damien Courvalin, said in a report on Thursday.
Backwardation — when near-term crude prices are higher than those for later months — will be needed for the cuts to shrink the glut, and prevent an increase in US shale production, the bank said.
In other energy trading, wholesale gasoline added US$0.03 to US$1.64 per gallon. Heating oil gained US$0.01 to US$1.56 per gallon. Natural gas rose US$0.05 to US$3.24 per 1,000 cubic feet.
Gold rose US$11.70 to US$1,268.10 per ounce and silver gained US$0.13 to US$17.32 per ounce.
Copper fell US$0.03 to US$2.57 per pound.
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