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Energy shares lead Asian stock losses as oil falls under $45

US West Texas Intermediate (WTI) crude fell below $45 per barrel for the first time since the Organization of Petroleum Exporting Countries (OPEC) agreed to cut output in November.

The speed and direction of the selling this week was enough to cause the December 2017 crude contract price to fall below the December 2018 contract CLZ7-Z8 , an indication of increasing worries about the overhang of supply. The drop is the result of continued concerns of oversupply and persistent production glut despite previous assurances from Saudi Arabia that OPEC together with Russian Federation will get supply under control.

"Any likelihood of an increase in the level of cuts remains slim, with OPEC officials playing down this possibility", said James Woods, global investment analyst at Rivkin Securities.

With the crude prices hitting a six month low at $45.52 last week and dropping below the prices seen before OPEC announced its decision to cut production in late November, the cartels failure to strengthen crude prices seems evident and the failure will force the cartels hand to extend its production cut for the next half of the year 2017. The result has been 11 weeks of expansion in American production. the longest run of gains since 2012.

Whilst they could agree to extend or deepen the agreement, analysts see mixed signals from (non-Opec) Russian over its intentions.

OPEC on November 30, 2016 agreed on its first limit on oil output since 2008, a deal supported by some non-OPEC members, including Russian Federation and Oman.

"This surge in US oil production is important as it risks offsetting the impact of continued high OPEC compliance which reached 110 percent in April", Goldman said.

Goldman said, however, that "long term oil prices have continued to steadily decline on growing evidence that the oil market can balance close to $50 per barrel".

Despite this sharp move lower in prices and timespreads, our tracking of the oil market rebalancing suggests that the month of April featured further progress in reducing the inventory overhang, although at a pace short of prior consensus expectations.

Energy-rich Azerbaijan produces three grades of crude oil - Azeri BTC, Azeri Light, and Urals. "They did say current output cuts were likely to be extended", according to CNBC. OPEC and non-OPEC states initially agreed to cut 1.8 million barrels per day (bpd) in the first six months of 2017.

OPEC in its upcoming meeting on May 25 in Vienna will take a call on whether an extension cut is needed, however, below are the reasons which make a production cut extension imminent.

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