Futures added 0.4 percent in New York, after dropping 4.8 percent drop on Thursday. The cuts are working and stockpile reductions will accelerate in the third quarter, with inventories falling to the five-year average early next year, Saudi Arabia’s Energy Minister Khalid Al-Falih said after OPEC met in Vienna. Producers have more tools to further support prices if needed, Russia’s Energy Minister Alexander Novak said in a Bloomberg television interview.
Oil had climbed back above $51 a barrel after Saudi Arabia and non-OPEC member Russia rallied support from the Organization of Petroleum Exporting Countries and other nations to extend the deal into 2018. While stubbornly high global inventories have taken longer than expected to drain, signs that U.S. stockpiles are easing from a record had added to the optimism.
“OPEC delivered what they said they would, or at least what they flagged they would do,” Wayne Gordon, executive director for commodities and forex at UBS Group AG’s wealth management unit, said in a Bloomberg television interview. “The market is tightening up and the statistics are showing that. Inventories in the U.S. are going to come under material pressure in the next month or two, and we think that’s what’s needed to really put a fire under prices.”
West Texas Intermediate for July delivery was at $49.11 a barrel on the New York Mercantile Exchange, up 21 cents, at 8:24 a.m. in London. Total volume traded was about double the 100-day average. Prices slumped $2.46 to $48.90 on Thursday, the biggest decline on a percentage basis since May 4. WTI is down 2.4 percent this week.
Brent for July settlement was at $51.79 a barrel on the London-based ICE Futures Europe exchange, up 33 cents. The contract lost $2.50, or 4.6 percent, to $51.46 on Thursday. The global benchmark crude traded at a premium of $2.68 to WTI.
“Some market participants may have expected either a deeper cut, a longer one, inclusion of more countries, or other such icing on the cake,” analysts at Barclays Plc including Michael Cohen wrote in a research note. The selloff “is likely short lived, and we continue to believe that inventory draws in the coming summer months will be supportive of prices.”
Rising U.S. shale output won’t derail OPEC’s goals and a nine-month extension will “do the trick,” Al-Falih said Thursday after the meeting in Vienna. Nigeria and Libya will remain exempt from making cuts and Iran, which was allowed to increase production under the original accord, retains the same output target, said Kuwait’s Oil Minister Issam Almarzooq.
OPEC will face the test of defending market share and generating revenue growth as it transitions from the curbs, Goldman Sachs Group Inc. analysts including Damien Courvalin said in a May 25 report. Backwardation — when near-term crude prices are higher than those for later months — will be needed for the cuts to shrink the glut, and prevent an increase in U.S. shale production, the bank said.