NEW YORK, (Reuters) – Oil prices fell nearly 5 percent today as OPEC’s decision to extend production curbs fell short of expectations of deeper or longer cuts.
As expected, the Organization of the Petroleum Exporting Countries, along with other non-OPEC members, agreed to extend a cut in oil supplies of 1.8 million barrels per day (bpd) until the end of the first quarter of 2018 to reduce a glut of supply.
However, in the days prior to the meeting, talk of a possible extension for 12 months, or deeper cuts than the current agreement, helped buoy prices on optimism of a faster drawdown in supply.
In Vienna today, Saudi Arabia’s energy minister, Khalid al-Falih, said ministers did not see a need to reduce oil output further.
“Maybe they’re disappointed that there wasn’t anything additional,” said Adam Rozencwajg, managing partner at Goehring & Rozencwajg Associates in New York.
Brent crude oil was down $2.38 a barrel at $51.58 a barrel by 12:15 p.m. (1615 GMT).
U.S. West Texas intermediate crude futures fell $2.43 a barrel to $48.93, a 4.8 percent drop, breaking through $50 for the first time all week as volumes rose sharply.
The global glut of supply has proved difficult to draw down even after OPEC agreed to cut production in the first half of the year.
That was in part because of large volumes of floating storage, weaker-than-expected demand in places like India, and increased U.S. production.
U.S. oil production has already risen by more than 10 percent since mid-2016 to more than 9.3 million bpd, and OPEC’s contribution to the cuts – 1.2 million bpd – could be completely eaten up by rising U.S. production by year-end, according to RBN Energy.
Rising U.S. production may continue to offset OPEC’s cuts, even though refining runs have touched record levels in the United States in recent weeks.
“Everyone is watching (the price of oil) with trepidation, not jubilance,” said David Arrington, president of shale oil producer Arrington Oil & Gas in Midland, Texas.
How shale producers respond in coming months will have as much of an effect on pricing as OPEC’s cuts, he said.
“If U.S. shale producers exceeded our projected increases, it’ll drive the price down again,” Arrington said.
