Crude oil tumbled on Thursday even after
OPEC and its allies extended their agreement to lower
production by nine months.
The Organization of Petroleum Exporting Countries — a cartel
of major oil producers — extended the deal that started in
January to address the global supply glut that has
subdued prices. Non-OPEC producers including Russia also
agreed to cut production through March, said Bijan Namdar
Zanganeh, Iran’s minister of petroleum, according to
The extension had been widely expected. West Texas
Intermediate crude oil, the US benchmark of prices, rallied about
17% from its year-to-date trough at the beginning of May through
Wednesday. But on Thursday, in what appeared to be an enactment
of the markets parlance “buy the rumor, sell the news,” WTI
tumbled about 4.9% and back below $50 per barrel to as low
“We’ve seen this kind of action time and time again,” said
Craig Erlam, a senior market analyst at Oanda, in a note.
“Traders buy on anticipation of the deal and when its delivered
as expected, they take their profits and run. The unwinding of
the positions, probably combined with some speculative selling,
is what creates this sudden plunge.”
Besides profit-taking, traders also realize that the deal
does not immediately solve the oil market’s oversupply problem.
OPEC members typically do not comply with quota
and US shale producers are likely to
continue flooding the market, according to Tortoise Capital
OPEC is scheduled to meet again in November.
Elena Holodny/Business Insider