Muted Consumer Impact Expected From OPEC Decision To Cut Production

Oil priced near US$50 means USA onshore output would remain flat next year, and while the Permian could still rise even if prices drop, the Bakken and the Eagle Ford need oil at US$60 to raise their production in 2017, Garrett Golding, vice president at The Rapidan Group, said.

But according to some, the OPEC deal does not go far enough in tackling the oil supply problem, and questions have been raised as to whether it will be enforceable.

At its November 30 meeting in Vienna, OPEC said that its members would cut production from 33.6 million barrels a day to 32.4 billion.

Before the OPEC meeting, the U.S. Energy Department predicted that crude would rise to US$50 or US$51 a barrel next year.

In the more than 55 years since the cartel’s founding, the oil market has changed drastically, thanks in large part to the rise of North American production.

Riyadh was forced to soften its stand after it became clear that the kingdom was getting clobbered by its own policies.

The Organization of the Petroleum Exporting Countries meets on Wednesday, while a week heavy in US economic data including a GDP revision, inflation, factory and services activity is set to climax on Friday with the monthly jobs report.

The cancellation of Monday’s meeting between Opec and non-Opec producers – triggered by Saudi Arabia’s failure to send a delegate – took its toll on oil prices in the previous session. Stockpiles fell by 884,000 barrels to 488.1 million barrels.

The deal also included OPEC’s first coordinated action in 15 years with non-member Russian Federation.

In short, analysts say, consumers and businesses are not likely to see the return of US$100-a-barrel oil – and the high energy costs that came with it – anytime soon.

West Texas Intermediate for January delivery rose $US2.11, or 4.3 per cent, to $US51.55 a barrel on the New York Mercantile Exchange.

Expectedly, the early reaction in energy stocks has been positive.

The dollar rose as much as 1.9 percent against the yen to 114.53 yen, its highest level since March 2, while the euro fell almost 0.9 percent against the dollar to a session low of $1.0554.

Soundbites at the start of a hectic day pushed oil prices higher at the start of a pivotal Wednesday. (XOM – Free Report), Chevron Corp.

Emerging market stocks rose 0.9 percent.

That’s good news for the Canadian dollar and oilpatch companies, which have laid off employees and pulled back on investment in the face of low prices. Multinational oil enterprises (like ExxonMobil, Chevron etc.), on the back of greater certainty, will now be able to revive spending on drilling activities.

Indonesia, which is a net oil importer, was unable to accept a 4.5% cut so its membership of the organisation has been suspended for the time being. Futures touched $US54.36, the the highest level since July 30, 2015.

On the flip side, a sustained crude rally will render their refining unit unprofitable. If the weather forecast proves wrong, prices could sink because heating-oil inventories are running above their 5-year average and grew again last week.

Traders nonetheless seem convinced the deal will make a real difference to the supply-demand-stocks balance next year.

The price of oil is falling down.

In a statement, the prime minister was also quoted as saying that efforts were being made to ensure that the oil price hike would have the least possible impact on fuel prices in the first few months of next year.