Oil Prices Wane After Output Cap Extension

12/04/17 06:48 AM EST
By Christopher Alessi 

LONDON--Oil prices started the week down Monday, as the market appeared to look past OPEC's agreement late last week to extend its crude production cuts through the end of 2018.

Brent crude, the global benchmark, was down 0.75%, at $63.25 a barrel on London's Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were down nearly 1%, at $57.79 a barrel.

The Organization of the Petroleum Exporting Countries and a group of non-OPEC producers led by Russia agreed Thursday to extend a deal to hold down crude output by nearly 2% through the end of 2018. But the participants said they would reassess market conditions in June to decide whether to continue with the cuts.

"The price reaction to the OPEC decision was relatively muted," said Olivier Jakob, head of oil consultancy Petromatrix. "The price reaction has been very limited because there is nothing that has really changed."

Oil market observers had widely expected OPEC and Russia to prolong the deal, which was first agreed a year ago. At that time, OPEC and a coalition of other producers pledged to cap production at around 1.8 million barrels a day below peak October 2016 levels, with the aim of alleviating a global supply glut and boosting prices. The plan went into effect at the start of 2017 and was extended in May through March 2018.

Initially, the deal did little to lift prices. But in the second half of 2017, higher compliance with the pact and a combination of stronger macroeconomic fundamentals, tighter demand and an emergent geopolitical risk premium helped to drive prices up. Prices have advanced roughly 20% since September.

"Barring any unexpected bearish supply development and assuming strong compliance, oil prices are unlikely to fall significantly in coming months," said Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd., in a note. "Ignoring geopolitics, the $55-$65 a barrel price bandwidth seems reasonable for the coming six months."

Among refined products, Nymex reformulated gasoline blendstock--the benchmark gasoline contract--was up 0.67%, at $1.74 a gallon. ICE gasoil, a benchmark for diesel fuel, changed hands at $539.75 a metric ton, down 1.41% from the previous settlement.

Write to Christopher Alessi at christopher.alessi@wsj.com

 

(END) Dow Jones Newswires

December 04, 2017 06:48 ET (11:48 GMT)

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