Iran welcomes OPEC production-cut decision

A production cut could have a lasting impact on consumers as oil price increases feed into the cost of auto fuel, heating and electricity.

In Asia, OPEC’s biggest customer region, oil importers made clear that they would not be happy with an artificial supply cut that hikes prices, and that in case of a cut they would seek more supplies from outside OPEC.

Non-OPEC member Russian Federation, which had long resisted cutting output and pushed its production to new record highs in recent months, agreed to cut output by 300,000 bpd. The deal was expected to be finalized this week and include participation by non-OPEC producers such as Russia, Azerbaijan and Kazakhstan. The move effectively scraps its strategy of squeezing USA competition through high supply that had backfired by lowering prices and draining the cartel’s own economies.

OPEC then opted to pump at high volumes instead of throttling production, in an attempt to maintain market share and drive US shale oil and gas producers with higher operating costs, out of business. This would also give the United States oil companies a boost. That makes the long-term path for oil more uncertain, as few expect the commodity to reach $60 a barrel soon.”You’re going to get a few days of fluctuations”, Paul Mumford, fund manager at Cavendish Asset Management said.”Nothing goes up in straight lines and people do like to take profits when big moves like this occur”.

It’s possible the cutback will have a lasting effect on consumers as oil is used for vehicle fuel, heating and electricity. But RBC Capital Markets said adherence may not matter so much this time for a simple reason: OPEC members are near full-tilt, and they don’t have much more capacity to pump. But if gasoline spikes to $4, “that could be bad”. “This control ended last year when Congress lifted the 40-year export ban on US crude oil”.

West Texas Intermediate for January delivery rose $US3.69, or 8.2 per cent, to $US48.92 a barrel at 9.19am on the New York Mercantile Exchange.

“I think it is a good day for the oil markets, it is a good day for the industry and … it should be a good day for the global economy”. Crude had fallen to as low as $28 amid the supply glut in mid-February.

He said oil could rise to $55 per barrel.

Bonds across the world lost about $2 trillion in market value since the November 8 US election before they recovered a bit this week, according to Bank of America Merrill Lynch data. Drilling fell off after oil prices started to slide in mid-2014. The number of active USA drilling rigs bottomed out at 404 in May and has been rising since, to just below 600 last week.

Subsequently, share price of Barrick Gold Corporation, the world’s largest gold miner, retreated 2.89 percent to 20.15 Canadian dollars.

“Firstly, this remains a growth business, with oil demand in OPEC’s 2016 World Oil Outlook reaching over 109 million barrels of oil a day by 2040, a healthy increase of over 16 million barrels a day”.

Historically gas prices decline by about 15 cents a gallon during the month of December, Laskoski said. “Today it’s nearly impossible to get a hot rig” with a crew.