Iran welcomes OPEC production cut decision

Analysts say will oil prices will rise, it’s unlikely we’ll see prices return to the $100 a barrel level we saw two years ago.

McTeague told CTV News Channel that the increase comes on the heels of the Organization of the Petroleum Exporting Countries’ (OPEC) surprising decision to cut oil production for the first time in eight years on Wednesday.

Analysts are also doubtful over how the agreement will be enforced, as OPEC has no authority to make its members comply.

Non-OPEC Azerbaijan and Kazakhstan have said they might also cut.

Doubts about the historic deal were widespread in the market. If the group maintains agreed upon cuts, oil could trade in the $50 to $60 range, according to Morgan Stanley.

Prices of oil futures added as much as 1.6 percent in NY and traded at more than US$50 for the first time since October 27.

U.S. West Texas Intermediate (WTI) crude futures were at USD51.10 per barrel by 0037 GMT, up 5 cents from their last settlement.

Brent crude’s premium to U.S crude widened to the biggest in about ten weeks.

The development also triggered frenzied trading, with Brent futures trading volumes for February and March, when the supply cut will start to be visible in the market, hitting record volumes.

The Energy Department predicts that US production will fall from 9.4 million barrels a day in 2015 to 8.8 million this year and 8.7 million next year – the forecast assumed oil at $50 a barrel next year. “Meanwhile, other firms have been able to reduce their costs during this phase of depressed prices and margins are a lot better than when the oil price fell back initially”. President-elect Donald Trump has vowed to increase drilling in the USA, the world’s third-largest producer after Saudi Arabia and Russian Federation, which would help ensure there is plenty of oil. Read Rig Count Could Impact US Crude Oil Production and Prices for more on US drilling activity.

Motoring organisations warned the Opec deal could push petrol prices up by 9p a litre, adding an average £5 to the cost of filling a vehicle.

A glut in supply has led to sinking oil prices over the past few years, as countries such as Iran and Saudi Arabia regularly pumped out record amounts.

Beyond Moscow, “the OPEC producers seem to try to convince countries outside participation in cartel efforts”, said Tim Evans in a note from Citi. While the group plans to hold talks with non-0PEC producers next week in Doha, OPEC will meet again on May 25 next year, at which point it intends to extend the cuts by another six months.