OPEC Production Cut Sends Gas Prices Upward – for Now

Oil prices dipped on Friday on concerns whether major producers would implement an OPEC-Russia deal to reduce production, compounded by data showing output in Russia rose to a post-Soviet high ahead of the announced cutback.

West Texas Intermediate for January delivery rose as much as 80 cents to $50.24 a barrel on the New York Mercantile Exchange and traded up $1.10 cents at $50.54 at 7:50 a.m.

The WTI Dec 2017 to Dec 2018 CLZ7-Z8 spread rallied to as much as negative 39 cents from negative $1.26 a barrel on Tuesday.

In the agreement where the countries are exempt from the production, Nigeria was accommodated due to some of the Oil and Gas facilities damaged by militant attacks in recent months.

The pact is seen as a boon for USA shale producers, who have developed techniques to pump crude at a price nearly as low as that of Iran and Iraq. It will help bring forward the rebalancing of oil markets.

“The market will no longer see a sudden plunge in oil prices”, Kiwoom Securities Co market strategist Seo Sang-young said by telephone from Seoul. The organization would also have its next meeting on May 25 to monitor the deal and could extend it for six months, Qatar said. Secondly, as Madhavi Mehta of Kotak Commodities Services Ltd points out, the biggest challenge is whether Opec members will adhere to new production targets.

Qatari Energy Minister Muhammad Salih al-Sada said the proposal was for the meeting to take place in Doha on December 9.

Rystad Energy predicted on Thursday that the OPEC deal should allow non-OPEC shale oil production to rise by 1 million barrels per day in 2018.

Members of OPEC, which include Saudi Arabia, Iraq and Iran, reached a consensus on Wednesday which should go some way towards reducing a global oversupply of oil which has pushed prices down.

Even if OPEC members carry through on their promises, global oil production would only fall by about 1 percent. Higher oil prices would cause pump prices in the U.S.to rise because crude oil accounts for almost half the cost of a gallon of gasoline, though any effects from oil price fluctuations usually take a week or longer to trickle down to consumers. By 12:28 p.m. EST (1728 GMT), Brent was up $2.34, or 4.5 percent, at $54.18 a barrel.

Morgan Stanley sees more USA shale drilling and increased investment from Asia to the North Sea limiting oil’s upside, setting the market up for disappointment in late 2017. Iraq, the group’s second-largest producer, agreed to cut by 210,000 barrels a day from October levels. Russian Federation said it would cut production by 300,000 barrels a day, though it isn’t clear how much of that will come from already expected declines.