Crude prices surprisingly fall after extension of oil deal

By Azernews

By Sara Israfilbayova

World oil prices sank from a five-week high after the Organization of Petroleum Exporting (OPEC) extended plans to limit production without deepening the cuts, keeping it at a level of 1.8 million barrels per day.

Global benchmark Brent fell by 0.6 percent to $51.13 per barrel, WTI (West Texas Intermediate) fell 0.78 percent to $48.52 per barrel.

Most investors had already factored in this outcome as Saudi Arabia and Russia earlier in May that a nine month extension was needed, but some had bet on the producers agreeing to bigger reductions in supplies, Reuters reported.

Chief market strategist of AxiTrader, Greg McKenna says that OPEC's decision to extend the agreement for nine months without increasing the volume of cuts will lead to the fact that the main factors affecting the world oil market will be data on reserves and production of oil in the U.S.

OPEC and non-OPEC producers agreed at a meeting in Vienna on May 25 to extend supply cuts of 1.8 million barrels per day until the end of the first quarter of 2018.

Before this deal, oil had climbed above back $51 a barrel after Saudi Arabia and non-OPEC member Russia rallied support from OPEC and other nations to extend the supply pact into 2018.

Quotas of countries will not change: the main burden of the "oil diet" will still be on Saudi Arabia (600,000 barrels per day), Russia's share will remain at 300,000 barrels per day.

The only new member of the deal was Africa's third-biggest oil producer-Equatorial Guinea, with a "symbolic" reduction quota of 12,000 barrels a day. OPEC would like to achieve a price increase up to $55-60 per barrel, said Ecuador’s Energy Minister Carlos Perez.

Beyond the potential upside from seasonal U.S. summer driving demand, another critical data point traders will be watching as barometers of global oil demand growth are Purchasing Managers’ Indices, according to Bloomberg.  And three of the most important PMIs will be released next week: the Chinese Caixin Manufacturing PMI, the Eurozone Manufacturing PMI and the U.S. ISM Manufacturing Index. All three conveyed growth in April, although the Chinese and U.S. PMIs showed a deceleration of manufacturing activity.