BUSINESS REPORT: Higher gasoline prices ahead

Crude oil prices extended gains on Thursday after OPEC and Russian Federation announced their agreement to curtail oil output in an attempt to accelerate market rebalancing, with Brent futures hitting the highest level in over a year, Kallanish Energy reports.

The agreement will set OPEC’s new production ceiling at 32.5 million barrels a day starting in January. On Thursday, Azerbaijan said it was also willing to engage in talks on cuts.

“With the deal agreed to in principle and country level quotas established, focus will now shift to implementation”, Goldman Sachs said in a note to clients.

Li Li, energy research director with ICIS China, said: “OPEC’s deal will surely have some short-term effect in bolstering global oil prices and helping oil and gas firms in China”. 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”.

Benchmark Brent crude for February rose $1.10 a barrel to a high of $52.94 and traded around $52.90, up $1.06 by 1315 GMT.

The OPEC proposal is parts of its effort to trim 1.2 million barrel per day crude oil output in a bid to raise ongoing subdued prices.

In addition to getting the parties to commit to the deal, traders are also anxious about the influence of increased USA shale production on prices.

Diesel fuel, which typically gets more expensive this time of year, was 3 cents higher than a month ago at $2.39.

Brent crude’s premium to U.S crude widened to the biggest in about ten weeks. We don’t know, but what we do know is that wholesale gasoline prices all across the country went up today from 8 to 11 cents a gallon. Oil at that level would lead to a “sizeable shale response”, adding 800,000 barrels a day in 2017 versus oil at $45, the bank said, reiterating its WTI crude forecast of $50 for the second half of next year. The other question is whether non-OPEC producers will stick to their side of the deal.

Others noted that the cuts could leave the field open for other producers, especially USA shale drillers.

US light crude oil rose $2.32, or 4.7 percent, to $51.76 a barrel, and was approaching a 2016 high of $51.93.

Tehran has been rushing to rebuild its oil-export capacity since its landmark nuclear deal with world powers led to a lifting of worldwide sanctions against Iran.

We’ve just released a new oil price prediction now that OPEC has agreed to slash production, and we are predicting double-digit gains.