Oil prices declined as the dollar rallied on Friday and investors profited in on crude’s 6% increase following OPEC members agreed on output curbs for the first time since 2008 to stabilize a two-year price fall. Global benchmark Brent crude futures LCOc1 decreased 33 cents at $48.91 a barrel by 1350 GMT, but still hovered near 6 percent higher than before Wednesday’s OPEC deal.
U.S. crude CLc1 dropped 6 cents at $47.77 a barrel, also about 6 percent higher than before the OPEC deal. The dollar .DXY gained versus a basket of currencies, making it more expensive for investors to hold dollar-denominated commodities like oil.
“We’re seeing some profit-taking because it is a long time until the next OPEC meeting in November when individual quotas have to follow,” quoted Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg.
The OPEC had agreed to limit output to 32.5-33.0 million barrels per day from roughly 33.5 million bpd, projected to be August’s production level. The details, including the allowance for each member and the implementation data, will be completed at OPEC’s policy meeting in November.
“The group surprised us in Algiers and we cannot rule out that they will surprise us again,” BMI Research analysts reported.
“However, we maintain our view that a collective cut will have little impact on a fundamental level.”
A resilient oil supply surplus brought prices from mid-2014 highs above $100 a barrel to below $50 today, enticing the oil producers’ group to find agreement on curbing output. Russia, not an OPEC member but a large producer currently pumping crude at record high levels, commented it would find a way to halt production if the country reaches an deal with OPEC members.
The United States, a non-OPEC country that is now the world’s largest oil producer, said it had little confidence in this week’s deal resulting in higher prices in the long term. Amos Hochstein, the U.S. energy envoy, reported in a interview that the deal will either lead to higher U.S. production and spark another price decline or permit U.S. producers to grow market share. Investors are preparing for further oil price volatility before the November meeting.
“We are likely to see some volatility going into November’s meeting,” stated Jade Fu, investment manager at Heartwood Investment Management.
“We continue to maintain reasonable exposure to energy through commodity-related sectors, such as U.S. high yield and private equity.”