NEW YORK (Reuters) - Oil prices fell about 5 percent on Thursday, on track for their biggest daily drop in three weeks, after OPEC's decision to extend production curbs fell short of expectations of deeper or longer cuts.
As expected, the Organization of the Petroleum Exporting Countries, along with other non-OPEC members, agreed to extend a cut in oil supplies of 1.8 million barrels per day (bpd) until the end of the first quarter of 2018 to reduce a glut of supply.
However, in the days prior to the meeting, talk of a possible extension for 12 months, or deeper cuts than the current agreement, helped buoy prices on optimism of a faster drawdown in supply.
In Vienna on Thursday, Saudi Arabia's energy minister, Khalid al-Falih, said ministers did not see a need to reduce oil output further.
“Members participating in the output deal failing to agree on deeper cuts have given a bearish signal to the market as an extension alone may not rebalance the market fast enough," Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London.
Brent crude oil was down $2.69, or 3.8 percent at $51.89 a barrel by 1:02 p.m. (1702 GMT), after hitting a low of $51.32
U.S. West Texas intermediate crude futures was trading $2.69 or 5 percent lower at $48.67. WTI plunged as much as 5 percent to a low of $48.75, breaking through $50 for the first time all week as volumes rose sharply.
Both benchmarks were on track for their biggest percentage decline in three weeks.
John Kilduff, partner at energy hedge fund Again Capital LLC in New York, said the market is witnessing a classic "buy-the-rumor, sell-the-news" cycle.
"This time, however, the news was disappointing, with the Saudis unable to persuade their oil producing colleagues to cut more," he said.
Representatives from OPEC members Nigeria and Iraq, speaking in Vienna, said they were not concerned about the drop in prices, terming it ordinary price fluctuation following an OPEC decision.
Falih, who noted he never worries about daily price reactions, said the cartel could extend cuts further at its next meeting in November.
He said that seven weeks of U.S. crude drawdowns and a drop in floating storage were excellent news and that the long-term trend will be healthy.
The global glut of supply has proved difficult to draw down even after OPEC agreed to cut production in the first half of the year to bring the supply-demand equation back into balance. Futures markets activity shows a reduced expectation for the market to balance.
“I don’t think the cuts are enough for [OPEC] to reach their goal in a nine month period and this is reflecting that," said James Williams, president of WTRG Economics in London, Arkansas.
That was in part because of large volumes of floating storage, weaker-than-expected demand in places like India, and increased U.S. production.
U.S. oil production has already risen by more than 10 percent since mid-2016 to more than 9.3 million bpd, and OPEC's contribution to the cuts - 1.2 million bpd - could be completely eaten up by rising U.S. production by year-end, according to RBN Energy.
Rising U.S. production may continue to offset OPEC's cuts, as producers have said in the past that they can remain profitable with U.S. crude trading $45 to $50 a barrel. [EIA/S]
“Everyone is watching (the price of oil) with trepidation, not jubilance,” said David Arrington, president of shale oil producer Arrington Oil & Gas in Midland, Texas.
How shale producers respond in coming months will have as much of an effect on pricing as OPEC’s cuts, he said.
“If U.S. shale producers exceeded our projected increases, it’ll drive the price down again,” Arrington said.
(Additional reporting by Gary McWilliams in Houston, Christopher Johnson in London, Henning Gloystein in Singapore; Editing by Marguerita Choy, Edmund Blair)