Oil Prices Edge Higher Following OPEC Decision
May 26 2017 - 4:53PM
Dow Jones News
By Alison Sider and Jon Sindreu
Oil prices rose Friday, reversing earlier declines as major
producers tried to reassure the market and investors regained some
confidence in OPEC's agreement to extend its production cuts
through the beginning of next year.
U.S. crude futures rose 90 cents, or 1.84%, to $49.80 a barrel
on the New York Mercantile Exchange. Brent, the global benchmark,
rose 69 cents, or 1.34% to $52.15 a barrel on ICE Futures
Europe.
The move higher follows a nearly 5% drop Thursday after the
Organization of the Petroleum Exporting Countries renewed an
agreement with 10 other crude-oil producers to extend output caps
through March 2018. While the nine-month extension to the current
production cuts was widely anticipated, many had hoped the group
would agree to even deeper reductions in output or clarify how it
plans to eventually exit the production cut agreement without
flooding the market with supply once again.
"I think the initial reaction of the market suggests all doubts
about the efficacy of the cuts that drove the market below $45 are
still there, " said Gene McGillian, research manager for Tradition
Energy. "A lot of the optimism that cut is going to mean something
has evaporated."
But prices regained ground throughout Friday, amid light trading
ahead of the Memorial Day holiday weekend as investors focused on
comments from producing nations indicating that they could take
additional steps. Russian Energy Minister Alexander Novak said
Thursday that a committee tasked with monitoring the production cut
agreement will be empowered to adjust the deal if needed. And
Iran's oil minister, Bijan Zanganeh, said in a press briefing that
OPEC is "ready to do more."
"They're going to waste no time trying to keep the rhetoric
machine fired up," said John Kilduff, founding partner of Again
Capital. "I don't think anybody wants to be short going into the
weekend -- there's plenty of time between now and Tuesday for them
to try and talk this market up again," he said.
Many market observers said the sharp price decline Thursday was
an overreaction, arguing that nine more months of lowered output
from some of the world's largest exporters will eliminate the glut
that has weighed on the market for nearly three years.
"Our latest supply-demand projections leave us expecting that
such a 9 month extension will achieve a normalization in OECD
inventories by early 2018, even with gradually declining
compliance," analysts at Goldman Sachs wrote after the agreement
was announced Thursday.
While the market had a "knee jerk reaction" because it "remains
skeptical" on the impact of OPEC's cuts, "we encourage investors to
separate the near-term, noise-driven price gyrations and focus on
the improving global fundamental backdrop," said Helima Croft,
global head of commodity strategy at RBC Capital Markets, LLC, who
said she believes oil will eventually move between $50 and $60 a
barrel.
Rising U.S. shale output remains a potential challenge to OPEC's
ability to work off a supply glut. The number of oil rigs working
in the U.S. continued to rise for the 19th consecutive week,
according to oil-field services firm Baker Hughes Inc. But the pace
of increases has slowed: Just two additional oil rigs were added
this week.
Some traders and investors are still waiting on the sidelines,
not convinced the selloff is over. One of them is Mark Waggoner,
president of Excel Futures.
"If this was a normal volume day, I would say the drop is over
and we're going to start rallying. But we're going into a weekend,"
he said. But with prices still below the 200 day moving average,
he's not buying. "There's no real way to know which way it's going
to go," he said.
Gasoline futures rose 3.33 cents, or 2.07% to $1.6426 a gallon.
Diesel futures rose 1.24 cents, or 0.8%, to $1.5633 a gallon.
Summer Said, Benoit Faucon, Dan Molinski and Biman Mukherji
contributed to this article.
Write to Alison Sider at alison.sider@wsj.com and Jon Sindreu at
jon.sindreu@wsj.com
(END) Dow Jones Newswires
May 26, 2017 16:38 ET (20:38 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.