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US Crude Sinks Below $50 as OPEC Extension Disappoints Market

May 25, 2017 at 16:59 by Andrew Moran

US crude tumbled to fresh lows on Thursday as it is now trading under $50. Oil prices plummeted more than 4% as investors were disappointed by Organization of the Petroleum Exporting Countries (OPEC)’s nine-month extension to freeze oil production.

July West Texas Intermediate (WTI) crude futures cratered $2.13, or 4.08%, to $49.28 per barrel at 16:39 GMT on Thursday on the New York Mercantile Exchange. US crude is now trading at fresh lows – just prior to the OPEC meeting in Vienna oil prices had been trading at one-month highs.

Brent, the international benchmark for oil prices, is also feeling the pain. July Brent crude futures fell $2.03, or 3.76%, to $51.93 a barrel on London’s ICE Futures exchange.

Investors had hoped that OPEC would slash production levels even further to help limit the global supply glut. Instead, OPEC and Russia agreed to extend its production freeze at 1.8 million barrels per day (bpd) by another nine months. Saudi Arabia noted that delegates discussed all options on the table.

This did not please the market as traders continue to fear that US oil firms will still try to take advantage of higher prices and flood the market with more oil. Over the last 12 months, US oil production has spiked by more than 10% to 9.3 million bpd. Experts warn that the nine-month extension would cause an increase of 950,000 bpd in US production, a number that offsets OPEC’s supply and demand balancing efforts.

Reportedly, the market is also keeping an eye on Libya and Nigeria. Since these two nations are exempt from the OPEC arrangement, output is on the rise as they attempt to restore supplies affected by internal conflict.

On Wednesday, the US Energy Information Administration (EIA) reported that domestic crude supplies declined for the seventh consecutive week. According to the EIA, US crude stockpiles slipped by 4.4 million barrels for the week ending May 19 to 516.3 million barrels. Gasoline stockpiles fell by 800,000 barrels and distillate stockpiles decreased by 500,000 barrels.

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