Oil prices plunge on signal deeper supply cuts unlikely

(c) Sky News 2017: <a href="http://news.sky.com/story/oil-prices-plunge-on-signal-deeper-supply-cuts-unlikely-10863100">Oil prices plunge on signal deeper supply cuts unlikely</a>
 

Oil prices have slipped dramatically, driven by speculation the world's supply glut will take longer to eradicate than markets had forecast.

Brent crude was trading at $48.22 a barrel on Thursday evening - a daily loss of 5% - building on earlier falls sparked by weak Chinese economic data and higher-than-expected US oil inventories.

The slump gathered steam when it was reported that targeted production cuts, aimed at raising prices, may only be extended next month rather than deepened.

It was November last year when the OPEC cartel of oil-producing nations agreed, with non-members including Russia, to slash output in the first half of 2017.

That deal helped Brent climb back above $50 per barrel from lows below $30 witnessed in January 2016 - contributing to higher profits for many oil companies while motorists faced growing fuel bills.

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However, there has been recent evidence that a rise in US shale oil production, taking advantage of the rising prices, will mean supplies rising at a faster pace than demand once again - helping unleaded and diesel costs drop back again.

The Reuters news agency, citing OPEC sources, reported on Thursday evening that countries behind the production cuts - including powerhouse producer Saudi Arabia - were unlikely to agree deeper reductions shortly but maintain current pumping levels until the end of the year.

It means they would continue to extract 1.8 million fewer barrels of oil per day than was the case before the start of the year.

US producers are not bound by the production limits.

Many went to the wall or closed down temporarily as OPEC moved to protect its market share in 2015 and 2016 by keeping production high despite weak demand.

It changed tack when it became clear their economies were becoming stressed by weaker oil incomes.

Commenting on the price plunge, chief market analyst at Think Markets UK, Naeem Aslam, said: "We have broken a major support and the sentiment in the market has turned negative because the supply glut is not fading.

"The Opec members may extend their current production cut on the 25th May, but the market certainly wants to see more cuts.

"This may not sit very well with the countries who are already sacrificing their market share."

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