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Pound hit by YouGov poll..

Oil price weakens and sterling falls in jittery market

Brent oil fieldOil prices weakened after an OPEC agreement to extend cuts in crude production for a further nine months disappointed investors who had bet on bigger output cuts.

Sterling also fell 0.5% to $1.288, its biggest one-day slide in over three weeks, after a YouGov poll showed the Labour Party cutting the Conservatives’s lead to five points less than a fortnight before the General Election. showed the Tories now have a five percentage point lead over Labour, at 43% to 38%.

The FTSE 100 jumped 63 points to close the day at a record 7,547, closely followed by the FTSE 250, seen as a better barometer of the health of UK business, which also reached an all-time closing high, rising 57 points to 20,024.

Opec agreed an extension to oil supply cuts by nine months to March 2018. Some of the 11 non-Opec oil producers agreed to abide by the deal.

However, markets believed the cut was not enough to cut the glut. Brent crude fell 0.5% to $51.18, after slumping 4.6% overnight and is on track for a 4.5% weekly loss.

Following the Opec meeting in Vienna Khalid al-Falih, secretary general and Saudi Arabia’s energy minister, seemed to rule out deeper cuts.

Oil producers first agreed to reduce production last December in an effort to boost flagging prices.

A large part of the problem is the American shale oil industry, which has grown from very little 10 years ago, to become a major player.

Opec is seen to be doing little to boost the price of oil, said Russ Mould, investment director at AJ Bell.

“This is partly because crude had already run higher in anticipation of the deal, partly because some analysts had been hoping for a deeper cut and partly because US shale oil production is surging again, encouraged by crude’s advance from its lows under $30 in early 2016. 

“While both OPEC and non-OPEC members have largely kept to the agreed production cuts (especially in the former case), American output from its seven key shale fields remain a key variable and one over which the debt and stock markets have greater influence than Riyadh, Tehran, Baghdad or Moscow.

“The oil price’s recovery from its 2016 lows has enabled many US shale producers to refinance their debts or raise fresh capital and begin to drill again.

“According to data from the US Energy Information Administration The number of active shale rigs in the USA across the Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, Permian and Utica fields has more than doubled from its lows and oil production is starting to increase accordingly.

“Production fell by around 0.7 million barrels a day (or 12%) from peak to trough last year but this has already been pretty much fully reversed. Forecasts from consultants Wood Mackenzie of a further 950,000 barrel increase through 2018 would mean a total output surge of nearly 1.7 million barrels, enough the effectively offset the OPEC and non-OPEC cuts, even assuming both parties hold their discipline.”

A further slump in oil services company Petrofac took losses close to 38%  over the past two sessions after several brokers more than halved their price targets on the stock.

The company lost one third of its market value in the previous session after it suspended its chief operating office amid a fraud investigation.

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