Gas prices surge after OPEC cuts production

While OPEC’s decision to cut production gave an immediate boost to oil prices, the impact on consumers and the US economy is likely to be more modest and gradual.

Before Wednesday’s meeting in Vienna, Saudi Arabia’s energy minister said OPEC would ask non-members to also cut production.

The agreement hinges on the cooperation of major non-OPEC producers, who must also cut their production by a combined 600,000 barrels a day. The agreement Wednesday to cut production will accelerate the decline of global stockpiles, OPEC’s Secretary-General Mohammad Barkindo said in a Bloomberg TV interview Thursday.

Indonesia had made a decision to suspend its membership of OPEC because it could not agree to the production cut, he added. The cut of 1.2 million barrels per day (bpd) was at the upper end of expectations (700,00bpd-1.2 million bpd).

Today, it announced it will meet with non-OPEC countries to finalize a pact on reducing production on December 10 in Moscow.

Following the announcement after the cartel met in Vienna yesterday, the price for Brent Crude futures – the global benchmark for oil prices – jumped to over US$51 per barrel from US$46 per barrel the previous day before settling around US$49.90 per barrel this morning.

“If OPEC were to deliver on its 32.5 mbd target, then there is additional upside to prices and consequently to non-US, non-OPEC supply estimates, although more noticeably for 2018 than 2017”, said the report.

If you were long oil early Wednesday, then you’ve received your Christmas gift already, but whether prices will continue to surge higher depends on multiple factors. Brent crude traded positively 75 percent of the time, with an average gain of 1.8 percent. Concurrently, the West Texas Intermediate contract bounced back above $50, registering a 0.18% or 9 cents intraday gain to $51.15 per barrel.

It tend to be higher than those for Brent, but which registered only 368,000 and 214,800 lots for March and April, respectively.

While crude prices rallied on news of the cuts, some traders expressed concern that rising USA rig counts could undermine OPEC production cuts. It added its gradual oil price recovery is conservative, but remains valid, and noted the “stress case” scenario of oil retreating below $40/Bbl is “now much less probable”.

But a month after cuts, USA crude was down 53 percent of the time. Drilling fell off after oil prices started to slide in mid-2014.

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