Oil resumes rise after OPEC cut

OPEC’s output cut is also seen as a boon for US shale producers, rivals to the oil cartel. Plus, as with all OPEC agreements, the enforcement mechanism to keep members honest is largely toothless. The organization will also have its next meeting on May 25 to monitor the deal and could extend it for six months, Qatar said. U.S. shale producers have typically responded within 3-6 months to big moves in oil prices, and many operators are profitable with crude prices significantly below today’s level, suggesting they won’t hesitate to keep pumping. This, however, leaves the heavyweight, Saudi Arabia, to carry the cartel.

“Most of the members feel the Saudis should bear the bulk of the burden”.

The Organisation of Petroleum Exporting Countries (OPEC) has just announced that it has agreed to reduce production following weeks of negotiations finalised at its meeting in Vienna today. OPEC will aim to lower output to 32.5mb/d by 1 January 2017. According to Weafer, authorities could – instead of cutting production from its current levels – reduce it from the planned levels for next year and tell OPEC “that’s our contribution”.

Hence, it is nearly certain that a deal will be reached.

Iran’s arch-rival Saudi Arabia agreed to the largest production cuts, chopping almost half a million barrels from its current 10.5-million-barrel daily output.

Russia’s compliance with any successful deal is also an issue.

Neil Wilson, of ETX Capital, said despite the doubts over the detail of the agreement “on the whole Opec should be pleased with a job well done at long last”. “By the time people realized they didn’t cut, it didn’t really mattered”, he added. “Most importantly to our view, the deal will stem the cycle of competitive OPEC capacity additions, allowing demand growth to catch up to supply”.

OPEC’s agreement to curb crude production for the first time in eight years will have more impact on the upstream sectors of China’s oil giants, analysts said.

He stressed that any deal “which isn’t followed through on could be the worst possible outcome for the group”.

The bond and energy markets saw the most drama on Wednesday.

“Opec’s target is to have prices in the US$55-to-US$60 range”.

“A lot of these nations are – let’s face it – distressed. there might be some cheating but the cuts are so diversified across so many nations that it probably won’t.be very meaningful”.

It was unclear tonight whether the Opec cuts were wholly contingent on the planned 600,000bpd cuts by non-Opec members, including a 300,000bpd cut by Russian Federation.

But analysts said that the cuts are likely to cause other producers, especially USA shale drillers, to increase output.

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

If the production cut succeeds and drives up the price of oil, that would encourage North American oil shale producers to resume drilling and complete unfinished wells.

Banks rose as members of President-elect Donald Trump’s economic team discussed ways to make it easier for banks to lend more money, which could lead to larger profits for financial institutions.

“The consumer isn’t really focused on gasoline since prices remain low”.