What happened?
After two weeks of fairly steady gains, crude oil lost a step this week. After gaining 11 per cent from May 9-May 23, Brent crude futures have fallen 4 per cent, from over $54 to $52 at the close on May 26.
The big driver this week has been relatively mixed news. OPEC announced it would continue its plan to cut output by 1.8 million barrels per day, keeping production at recent levels in an effort to stabilize prices.
Unfortunately, this good news wasn’t particularly well received by the market. Some were hoping the cartel would even consider a bigger cut, as U.S. crude production has continued to climb in recent months.
Now what?
Oil prices are likely to remain volatile for the foreseeable future. And while OPEC’s decision to extend production cuts is relatively positive for oil prices, the market put more value in the news that North American shale production would probably grow faster than anticipated this year, stopping the recent mini-rally and sending prices lower.
At the end of the day, it seems unlikely that U.S. shale production will bridge the gap between OPEC’s continued cuts and global consumption. If that proves to be the case, this week’s market reaction may have been a little premature. However it plays out, there’s still a lot of oil in the market that needs to be worked through before there’s any chance oil prices can push past $60 per barrel. International Business Times
