Oil prices waver as doubts circulate over Opec production cut
The brief oil price rally stalled this afternoon as doubts mounted over Opec's provisional agreement to cut oil output for the first time since 2008.
Ranko Berich, head of market analysis at Monex Europe, said: "It appears that market participants remain sceptical of Opec’s mettle, and if the cuts announced will be sufficient to clear the current supply glut in crude."
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Brent crude, the global benchmark, fell 0.39 per cent to $48.50 per barrel in mid-afternoon trading.
But its US counterpart, West Texas Intermediate crude, was last up 0.04 per cent to $47.07 per barrel.
The Organisation of the Petroleum Exporting Countries (Opec) said yesterday that it would cut output to a range of 32.5-33m barrels per day. The distribution between each country will be decided at the cartel's formal meeting in November, it added.
The move surprised traders, analysts and market commentators as past attempts to thrash out a production freeze deal had collapsed due to infighting.
However, they also pointed out that any coordinated action among Opec members to freeze production also risked backfiring.
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Berich continued: "The cartel has a tightrope to walk. Cutting production too far would prompt a supply response from North American production of the sort we saw in mid-2015, which could mean Opec’s efforts amount to nothing more than a transfer of market share. Cut too little, and the risk is that markets remain in oversupply."
Commodities titan Goldman Sachs said that the agreement could add as much as $10 to oil prices in the first half of 2017, however it's yet to revise next year's oil price forecasts due to the uncertainty of the proposal.