Oil benchmarks staged a marginal recovery in early Asian and European trading on Friday (26 May), after a decision by Opec and selected non-Opec producers to maintain their previously stated level of output cuts underwhelmed the market.
Both Brent and West Texas Intermediate (WTI) front month contracts shed over 5%, as Opec and 10 non-Opec oil producers, including Russia, decided to extend their collective production cuts of 1.8m barrels per day (bpd) by another nine months to March 2018, following the conclusion of their meeting in Vienna, Austria.
With the existing level of Opec and non-Opec cuts largely priced in by the market, that the producers did not go further sparked an overnight selloff.
Saudi Energy Minister Khalid Al-Falih said the decision was the optimal choice following deliberations aimed at rebalancing the market and bringing inventory levels down to five-year average levels, i.e. from current levels of around 3bn barrels to 2.7bn barrels.
"There are number of oil market variables which could play out over the course of the second half of the year. We will be monitoring the situation and stand ready to respond," Al-Falih added.
At 8:14am BST, Brent was broadly flat at $51.49 per barrel up 0.1% or 3 cents, while the WTI was down 0.1% or 6 cents to $48.84 per barrel.
Not only did Opec underwhelm the market, many commentators believe curtailment of the cartel's output will be matched by further increases in US shale production, with the headline output stateside tipped to rise to 10m bpd.
Bhushan Bahree, senior director at IHS Markit said the one thing Opec and its alliance of oil producing governments cannot do is a government-level deal limiting the output of US producers.
"We project that annual average crude oil production in the US and Canada will rise by 1.6m bpd between 2016 and 2018, an offsetting factor for the cuts being made by Opec and its non-Opec partners. Output in the US alone is projected by IHS Markit to rise by more than 900,000 bpd from the beginning of 2017 to the end of the year."
Going forward, Nizam Hamid, European ETF strategist at WisdomTree said: "With supply side dynamics undergoing a fundamental shift [thanks to the impact of US shale], only decisive action from Opec will boost prices from current levels, and so far investors have not been satisfied that Opec is tackling the issue aggressively enough."