Crude oil prices fell by 5% after a much-anticipated OPEC meeting extended the organisation’s existing commitment to reduce output by 1.8m barrels per day into 2018 rather than increasing it in-line with expectations.
This sent Brent Crude futures down to $51.63 a barrel on Friday (26 May), with oilfield services group Petrofac leading the losers on the FTSE 100, shedding 9.4% by mid-afternoon.
“There seems to be a little resistance on the price at $55bbl, but if OPEC members and a selection of non-OPEC members – notably Russia – abide by the supply cut, the price could conceivably hit $60/bbl by year end,” said Cantor Fitzgerald Europe’s Sam Wahab.
WisdomTree ETF strategist Nizam Hamid said: “The falls may provide a buying opportunity for investors who believe in the long-term story for oil, but they also highlight the environment of heightened volatility which the commodity is facing.
“With supply-side dynamics undergoing a fundamental shift thanks to the impact of US shale, only decisive action from Opec will boost prices from current levels, and so far investors have not been satisfied that Opec is tackling the issue aggressively enough.”
OPEC was under pressure from oil producers to reduce crude oil stockpiles from their current level at 3bn barrels to their long-term average of 2.7bn barrels.
At the same time pressure was high from investors to protect prices by limiting supply further, rather than just extending the curbs, which have already been in place for six months.