2017.05.2602:52:00UTC+00Oil in Global Economy Series: Pre-Announcement, Rumors, and ‘buy the Rumor, Sell the News’ killed Opec Deal Charm

OPEC and participating N-OPEC countries agreed to an extension of the current supply cut agreement for another nine months until March 2018 that aims to reduce global supply by 1.76 million barrels per day. However, just as we feared oil price suffered a very big decline after the agreement was announced. We warned our readers well before the meeting that oil price could suffer the famous ‘buy the rumor, sell the news’ trade. Oil price declined more than 3 percent yesterday. WTI is currently trading at $48.7 per barrel and Brent at $2.6 per barrel premium to WTI.

However, it was not just the type of trade we mentioned above that killed the charm of the OPEC agreement, it was also the ballooning expectations triggered by pre-announcement of the deal by Saudi Arabia and Russia as were other rumors that were floated by some members of the OPEC. The financial markets had weeks to digest the announcement made by Saudi Arabia’s oil minister Khalid Al-Falih and the Russian oil minister Alexander Novak that they agreed to an extension of nine months. Even countries like Iraq, Kuwait announced well in advance that they support the agreement.

In addition to that, there were rumors that there could be other N-OPEC countries who might join the initiative or there could be deeper cuts; both of which didn’t take place.