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Oil prices tank on investor fears over further OPEC cuts

06 May 2017

Oil prices were marooned near five-months lows on Friday after a near 5 percent fall in the previous session on concerns over rising U.S. supply, wiping out all of the price gains since OPEC's move to curb output.

Oil plunged to five-month lows on Thursday amid record trading volume in Brent crude, as OPEC and other producers appeared to rule out deeper supply cuts to reduce the world's persistent glut of crude.

That hurt U.S. Treasury notes with yields on benchmark 10-year notes yielding 2.35 percent, near its highest since April 10, and up from 2.31 percent late on Wednesday.

Meanwhile, investors braced for data from Baker Hughes scheduled for Friday, expected to show an increase in the number of active US oil rigs amid a boom in USA shale output. The result has been 11 weeks of expansion in American production in the longest run of gains since 2012.

"Today is a real scary day for the billions of dollars invested in higher oil prices", said Tom Kloza, global head of energy analysis at Oil Price Information Service.

"There's disappointment that the production cuts we've seen from OPEC and others have not had any impact at this stage on global inventory levels", said Ric Spooner, a chief market analyst at CMC Markets in Sydney.

"The market seems to be much further away from a balanced situation than some had previously forecast. There is a possibility that oil could be headed to the low $40s range from here". In the last week in April, the industry added another 28,000 bpd, taking US output up to 9.293 million barrels per day (mb/d), up more than 200,000 bpd since the beginning of March, and up more than 450,000 bpd since the start of the year. West Texas crude lost 4.9% to $45.48.

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The oil price surge saw U.S. shale production rekindled and output is up a massive 468,00 barrels a day to 9.239 million barrels a day. It started the year around 8.8 million barrels.

Their collapse Thursday sent Hong Kong-listed CNOOC skidding 1.6 percent and PetroChina tumbling 2.5 percent. The global benchmark crude traded at a premium of $2.57 to July WTI.

Energy companies led losses among equities in Asia, with the MSCI AC Asia Pacific Energy sub-index dropping 1.3 percent. Australia's Woodside Petroleum slid 3 percent.

-The S&P 500 Index rose 0.1 percent to 2,389.49 at 4 NY.

The Organization of the Petroleum Exporting Countries, Russia and other producers agreed previous year to curb production by 1.8 million barrels per day (bpd) for six months from January 1.

Oil traders have been patient, hoping that despite the rapid rebound in USA shale production, the OPEC cuts would take a substantial volume of oil off the market and correct the supply/demand imbalance.

The Organization of the Petroleum Exporting Countries was also in focus, which is set to decide whether to extend the pact into the second half of the year, when it meets on May 25 in Vienna, Austria.

Oil prices tank on investor fears over further OPEC cuts