Oil prices slip as scepticism over OPEC deal grows

Analysts believed a cut in OPEC production would have little effect if non-OPEC output continued to surge

Oil prices slipped on September 29 as investors questioned whether an OPEC agreement to curb production- the group's first such deal since 2008- would be enough to rebalance a heavily over-supplied market.

The Organization of the Petroleum Exporting Countries had, on September

But oil prices retreated as scepticism over the effectiveness of the deal led to profit taking.28, agreed to cut output level to 32.5-33.0 million barrels per day (bpd) from around 33.5 million bpd in August, follwing which prices rose 6 percent feeding on general risk appetite and boosting energy shares.

The European oil and gas index was up 4 percent today with the pan-European STOXX 600 index rose 2 percent.

 

Benchmark Brent crude futures lost 33 cents a barrel, setlling at $48.42 by 1038 GMT, after registering a rise of  $49.09 earlier-its strongest since Sept. 9. Brent settled up for $2.72 a barrel, or 5.9 percent, on Wednesday.

U.S. light crude oil was down 17 cents at $46.88 a barrel, after first hitting $47.47, its highest since Sept. 8.

Many analysts said there was a lack of clarity over various details involving a potential risk the deal could unravel.

"With such uncertainty around the minutiae, we expect uncommon volatility in the oil market until OPEC's November meeting," analysts at ING said.

How much each country will produce is to be decided at the next formal OPEC meeting in November, when an invitation to join cuts could also be extended to non-OPEC countries such as Russia.

It is not clear when the agreement would come into effect, how compliance with the agreement will be verified, what new quotas for countries would be and how long the deal would remain in effect, analysts said.

A cut in OPEC production could do little to reduce oversupply considering the uncertainty about output from Iran, Libya and Nigeria.

"The problem of surpluses will not be solved if these countries take full advantage of their capacities," sadi Eugen Weinberg, chief commodities analyst, Commerzbank.

Moreover, if oil prices were to rise, it could also lead to a surge in non-OPEC output.

U.S. bank Goldman Sachs expects the OPEC deal to add $7-$10 to oil prices in the first half of 2017.

"We think that OPEC is running a dangerous game if the aim is to push the crude oil price higher from here in the short term as it would just activate more U.S. shale oil production," said Bjarne Schieldrop, chief commodity analyst at Nordic bank SEB.