On Thursday, OPEC announced that the existing output cut agreement will be extended for an additional 9 months, which was in line with market expectations.
However, the scale of output cut remains the same at 1.8 million barrels a day. Besides, no new OPEC member states will join the agreement extension. In addition, the market witnessed some profit-taking pressure which weighed on oil prices resulting in a drop of 5%.
On early Friday morning, WTI spot and Brent crude spot hit a 2-week low of 48.31 and 51.17 respectively. The drop was followed by a rebound this morning.
The next meeting of OPEC and non-OPEC oil producers is schedule 30 November.
OPEC member states, Iran, Libya, and Nigeria are still exempted from the output cut agreement and have been increasing their production. Some non-OPEC oil producers, such as Russia and Kazakhstan have also attempted to boost their production.
The US shale oil industry has seen a marked recovery since February last year due to the rebound in oil prices. The US Baker Hughes data (that records the number of new Oil Rigs) is showing additional Rigs added every week.
In general, the oil supply remains high which has, and will, offset OPEC’s output cut effort to an extent. In the long term, oil prices are still under pressure.
On early Friday morning, we have seen USD weakening with the dollar index currently testing the support line at 97.00. USD/JPY retreated, currently testing the support line at 111.00.
US durable goods, core durable goods (Apr) and Q1 GDP second reading will be released at 13:30 BST this afternoon. The first Q1 GDP reading indicated a mere 0.7% growth, which was the slowest growth in three years. If we see a higher second reading, it will likely provide USD support.