Gas prices rise, but no long-term spike expected

The Organization of the Petroleum Exporting Countries has agreed on a cut in oil production, a move that rapidly sent the price of oil above $50 per barrel. “This will be the first time since 2008 that OPEC would be accomplishing such a feat which is expected to tackle the key challenge of low price of oil in the worldwide market which has affected the global economy with most OPEC member countries including Nigeria feeling the impact”, it said.

With cuts being implemented next year only against end-2016 levels, analysts said there was still a possibility that oversupply, which has halved oil prices since 2014, remains a factor next year. At a time when Iran was struggling to return to the oil market, Saudi Arabia was not inclined to make that easier by propping up prices and potentially ceding market share to Tehran.

Olivier Jakob, managing director of Switzerland-based consultant Petromatrix, said investors in West Texas Intermediate, the USA benchmark price for crude oil, “are not waiting for $70 per barrel”.

International Brent crude oil futures LCOc1 were trading at $53.36 per barrel at 0446 GMT, down 58 cents, or 1.08 percent, from their last close.

But if OPEC successfully throttles back on production and hikes prices, that could induce some fracking companies in Texas or North Dakota to start drilling again. Cutting production by half a million barrels a day has no short-term impact on how much oil the Saudis export.

A very rough rule of thumb is that, about two weeks after a $US1 rise in the price of crude, Australians pay an extra cent per litre for unleaded in the capital cities. “One led to an increase in gas prices, but the other didn’t affect things as much”. Oil markets were anticipating an agreement, but the extent of the cut took everyone by surprise.

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

The average price of a gallon of unleaded gas in Lincoln rose 3 cents from Thursday to Friday, going from $2.08 to $2.11.

“Everyone wins, but USA shale producers are the big winners from the OPEC deal”, Francisco Blanch, head of commodity markets research at Bank of America, said by telephone. It’s the first time OPEC members have agreed on a production cut since 2008.

US producers are likely to be winners, analysts say. “I think producers will be very, very careful not to go too far too fast”. Rig counts have been steadily rising for the past four months.

In economic news, the Bank of Japan said that the monetary base in Japan was up 21.5 percent on year in November, coming in at 417.657 trillion yen.

‘Compliance will be a problem, and the Russians will pump more gas instead, ‘ he said.

USA refined products also rose along with crude – ultra low sulfur diesel (ULSD) futures soared as much as 5.5 percent to its highest in more than a year while gasoline futures jumped as much as 6 percent. If crude oil touches Dollars 60 then oil import bill can rise by over USD 15 billion a year. Before we get to our new oil price target, here’s why the November OPEC meeting was so crucial for oil prices… There are now nearly as many drilling rigs running in the Permian as in the rest of the country combined, including offshore.