Oil Stays Strong After OPEC Deal to Cut Production

TVC NEWS Oil prices fell 2 percent on Tuesday on signs leading oil exporters were struggling to agree a deal to cut production to reduce global oversupply.

As oil prices rise, the supply of shale oil will increase, restricting the rise of oil prices, he said.

Experts say any spike in gas prices is likely to be small and short-lived.

Crude oil prices rallied more than 10 percent at one point after members of the Organization of Petroleum Exporting Countries agreed to coordinate on a production ceiling of around 32.5 million barrels per day.

The decision to cut oil production was such an arduous process in large part because of disagreements between Saudi Arabian and Iranian leadership.

The output cut follows several years of depressed oil prices due to a supply glut on the market, which has seen prices more than halve since 2014. These factors mean our gradual oil recovery scenario remains a valid conservative assumption, although the stress case, assuming oil retreating below USD40/bbl, is now much less probable. Flowers forecasts Brent to average $55-$60 a barrel in 2017, but cautioned this would “depend on OPEC being very careful to meet the terms of the agreement”.

Still, traders said the market was optimistic about Wednesday’s historic OPEC-Russia deal to reduce global output and help bring the oil market back into balance.

Price of futures contract for Brent crude with February delivery rose by 5.8% to $50.1 per barrel in the course of a trading session on London’s ICE for the first time since October 31.

Today, it announced it will meet with non-OPEC countries to finalize a pact on reducing production on December 10 in Moscow. The best possible result, at this stage, was that the club would end up with a face-saving deal while “kicking the can to the next OPEC meeting in half a year’s time”, Schieldrop said.

Analysts said the cuts could leave the field open for other producers, especially US shale drillers.

Oil is priced in dollars…and the U.S. currency has strengthened in recent weeks. “Ironically, it’s USA shale production that is breaking down OPEC and Russian Federation”. Commodities are priced in dollars, so when the dollar appreciates against other commodities, they become more expensive for foreign buyers.

AAA of MI has issued a Gas Price Hike Alert, saying “analysts believe the OPEC agreement could boost crude prices by $5 or more, which would directly lead to increases of at least 13 cents at the pump”.

Saudi Arabia has agreed to chop almost half a million barrels from its current production level, while Iraq has agreed to cut 210,000 barrels, the United Arab Emirates has signed on for a reduction of 139,000 barrels, and Kuwait has agreed to cut 131,000 barrels.

Crude has spiked 14% in just the past three days, ending Friday at a 17-month high of $51.68 a barrel.