Oil Slumped Post OPEC Extension Announcement

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Oil prices edged back up on Friday after a 5 percent fall in the previous session on disappointment that an OPEC-led decision to extend current production curbs did not go deeper.

With U.S. output rising steadily and OPEC and its allies potentially ramping up production in 2018 to regain lost market share, many traders, including Goldman Sachs, already expect another price slump.

David Arrington, president of shale oil producer Arrington Oil & Gas in Midland, Texas, said that how USA producers respond in coming months will have as much of an effect on pricing as OPEC's cuts.

"We have refineries that can process crude from the USA, we are buying from Canada, Russia, Latin American and African countries and also Far Eastern suppliers", B Ashok of Indian Oil Corp said. That will be welcome news to consumers and energy-hungry businesses worldwide but could continue to strain the budgets of some of the more economically-troubled oil-producing nations, like Venezuela and Brazil.

USA oils production C-OUT-T-EIA has already risen by 10 percent since mid-2016 to over 9.3 million bpd, close to the output of top producers Russian Federation and Saudi Arabia. He also praised the Saudi role to stabilize the oil market via their decision of cut production which is still active until now.

Speaking as a guest on "Bloomberg Daybreak: Americas", Blanch believes that an OPEC agreement to limit their collective supply that expires in June will be extended by just six to nine months. He spoke only on condition of anonymity because he was not authorized to divulge the information prematurely.

"With Russia and Saudi announcing nine months (of extended cuts) a week before, this was already priced in, so the market wanted the "over-and-above" which didn't come hence the sell-off", said Virendra Chauhan, oil analyst at Energy Aspects in Singapore.

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An extension of a managed production decline agreement led by OPEC won't have much of a long-term impact on crude oil prices, Wood Mackenzie found.

The day's volumes of 1.1 million contracts of WTI were the highest since the November 30 session, when OPEC first announced cuts.

"A deeper cut would have boosted the market but that would have been hard for most to accept".

As such, OPEC no longer holds the power to control oil prices but what the group can do is create a shift in the term structure of oil, which will create a backwardation scenario where spot prices above forward prices. The bank's expectation of the cuts generating backwardation by normalizing inventories would restrain USA shale growth, limiting access to private equity and capital, thus diminishing the likelihood of United States shale undermining the cuts.

USA output since last year's cut has increased by nearly a million barrels a day to 9 million barrels.

However, these futures were still set to end Friday with a weekly loss of more than 3 percent. And U.S. producers are poised to expand more, even if prices tick upward only moderately as a result of an oil-cut extension by OPEC and its partners. While stockpiles are shrinking, ministers acknowledged that the surplus built up during three years of overproduction won't clear until at least the end of 2017.

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