Oil Deal Extension Fails to Boost Prices and Saxo Bank Makes the Case for $35/Bbl Crude in 2018

Analysts now saying they didn't expect excited response from an OPEC agreement anyway. File Image / Pixabay

Proving true the recent contention from experts that the Organization of the Petroleum Exporting Countries' (OPEC) output cutback extension had already been priced into the market, U.S. crude moved up a mere 10 cents upon word that the cartel had agreed on Thursday to maintain the deal to the end of next year.

However, sources such as Bloomberg prefer to look at the upside: it noted that crude overall posted the longest streak of monthly gains since early 2016.

West Texas Intermediate settled up 10 cents to $57.40 per barrel, while Brent rose 46 cents to end the session at $63.57.

Although the market got what it was hoping for from OPEC - namely, an extension to the end of 2018 instead of halfway through, plus cooperation from Russia as well as the inclusion of formerly-exempt Libya and Nigeria in the deal, the aftermath of the meeting in Vienna seemed anticlimactic, especially given the media hype leading up to the event.

Dan Deming, managing director of KKM Financial, told Bloomberg television, "Overall you'd have to say it was a muted response," but "ultimately if Russia decides to play nice with OPEC, then we'll see oil continue to hold at [current] levels.

"From a longer term perspective, it does seem that oil is in an uptrend."

The analytical community that prior to the summit tried to outdo each other with predictions of what would happen or not happen in Vienna, is now assuming a casual stance: "We weren't expecting fireworks from this meeting," said Chris Kettenmann, chief energy strategist at Macro Risk Advisors LLC, adding, "the Saudis in combination with the Russians are trying to deliver a very curated message to suppress volatility in the oil market to attract investment."

And again, media sources (as did OPEC members and allies earlier this week) sent mixed signals about what exactly went on behind closed doors on Thursday: while Bloomberg stated that the Russians have agreed to the deal, CNBC reported that "ministers sent mixed messages through Thursday, with Russia's hesitance to agree to a nine-month extension emerging as the main obstacle."

Also on Thursday was the recurring specter that larger global issues may well render anything OPEC does or says fairly irrelevant: Steen Jakobsen, chief economist of Saxo Bank, told The National that China and India's efforts to curb pollution may cause oil prices to plummet as low as $35 per barrel next year.

He said, "I think down the road, this whole electrification which is a big issue in 2018 will really kick off.

"The reason I think it will be big is that the single biggest issue in China is pollution and a way to deal with it is to get electric cars; on top of that, India has a similar problem."

Omitted from Thursday's reporting of OPEC's Vienna summit was any disclosure if the cartel had agreed to Russia's previous demand that the extension include new language linking the size of the curbs to the health of the oil market: specifically, linking the cuts to the supply-demand balance on the market, or the level of fuel inventories in industrialized countries.