OPEC agreed Thursday to extend production cuts for another nine months until the end of March, as most expected, but this created disappointment among investors and the oil market, experts told Anadolu Agency on Friday.
'Traders were geared up for this meeting, and they were expecting OPEC to give them a surprise,' said senior market analyst Phil Flynn from Chicago-based futures brokerage firm Price Futures Group.
He said expectations among investors were built up on recent statements from Saudi Arabian and Russian oil ministers.
'The Russian oil minister said they would consider expanding production cuts for another 12 months. There were even rumors that they were going to cut production even further. When these did not happen, the market turned out to be disappointed,' Flynn said.
'Speculative traders started to dump their position, which led oil prices lower,' he added.
Crude oil prices lost almost 5 percent Thursday, their biggest single-day loss since March 8.
American benchmark West Texas Intermediate finished the day at $48.87 a barrel, and international benchmark Brent crude closed at $51.33 per barrel -- both with a 4.8 percent loss.
'What OPEC needs to do is to under-promise and over-deliver, as opposed to over-promise and under-deliver. Raising the expectations, the market was disappointed and crude prices got hit pretty hard,' Flynn explained.
Michael Lynch, president of economic consultancy Strategic Energy & Economic Research (SEER) in Massachusetts, stated that the outcome of the OPEC meeting was 'a little bit disappointing,' but also that investors took their positions accordingly to make profit.
'I think, this is a case of 'buy on the rumor, sell on the news.' People expected the agreement, bought oil, and when it was announced, took their profits,' he said.
Flynn, on the other hand, stressed that investors' sell-off in the oil market on Thursday was 'overdone.'
'Over time, we will see the impact of these production cuts [in supply], and demand will continue to rise. I agree with Saudi oil minister in saying they do not need to expand production cuts beyond nine months, and that markets will balance,' he added.
Until the market rebalances, however, there is one significant variable in the global oil market -- U.S. shale.
American oil producers increased their output 600,000 barrels per day (bpd) on average, between the two OPEC meetings.
When OPEC and Russia first agreed to cut production on Nov. 30, the U.S. had an output of 8.7 million bpd. This climbed almost 7 percent to 9.3 million bpd last week, according to the U.S.' Energy Information Administration (EIA).
The EIA also forecast domestic production to average 10 million bpd in 2018, according to its Short-Term Energy Outlook report for April.
'The U.S. will gain more market share. But, what OPEC loses in market share will be made up in higher prices,' Flynn said.
Higher prices would mean higher revenues from oil sales for Russia and OPEC countries, which were financially hit hard by low crude prices in the past three years, since their economies largely depend on revenues from energy exports.
Lynch said the significance of U.S. shale production cannot be neglected, but added 'there is at least a 50/50 chance that OPEC will have to let prices drop again, to $45 per barrel or so, to discourage new supply.'
He emphasized that a recession in China would lower global demand and hurt crude oil prices a lot; however, production shut down in Venezuela would help oil prices increase.
By Ovunc Kutlu in New York
Anadolu Agency
energy@aa.com.tr