Will oil producers’ cut have lasting impact — AP Analysis

Oil prices reached their highest point in a year early Monday morning after reports that OPEC’s production cuts will be much greater than expected.

On Monday, the price of USA benchmark crude rose $1.33, or 2.6 percent, to settle at $52.83 per barrel in NY.

Futures rose as much as 5.8 percent in NY and 6.6 percent in London. The contract was trading at $53.59 at 2:13 p.m.in London.

“Continued gains in prices would probably invite USA shale producers back to the market, which would in turn increase supply and thereby cap any further price gains”.

Oil prices have surged to a 17-month high after a group of the world’s largest producers, including Saudi Arabia and Russian Federation, agreed to reduce output.

World oil prices surged today after non-OPEC producers struck a deal to cut output, while Europe’s main stock markets were subdued before a key Fed meeting due this week. The total reduction represents nearly 2% of the global supply. The agreement is meant to further raise the price of oil after a two-year slump that has hurt the government finances of Russia, Saudi Arabia and other major oil producers.

Energy intelligence firm PIRA said late on Thursday the supply cuts to Saudi Arabia’s customers will be in varying measures.

Oil prices were higher following a weekend agreement to cut back production by 11 non-OPEC countries.

Saudi Arabia has informed its crude oil customers that supply cuts will be enforced from January onwards to comply with the Opec output reduction agreed last week. “I think it was a bit of a knee-jerk reaction”.

China’s insurance regulator, which recently warned it would curb “barbaric” acquisitions by insurers, said late on Friday it had suspended the insurance arm of China’s Evergrande Group from conducting stock market investment. Even Malaysia has said it will cut production by 20,000 bpd, while Brunei has committed to 4,000bpd.

Agreed, there is a concern that US shale oil production will likely gain traction if prices creep up.

The Canadian dollar, which often trades in tandem with crude, gained 0.27 of a cent at 76.14 cents US. If tightening in supplies continues into the second half of 2017, the deficit could amount to over 1.5Mbpd.

“Admittedly, after a big gap we may see a retracement of some sort in prices now but ultimately the fundamentals still point to higher levels going forward”.

His views are very different from those in the Middle East where many are counting on rising oil prices to boost their local economies.

“The cost savings over the last year are going to be sufficient to see a lot more new sales come onto the market than what may have been envisioned a year ago”, he said.

Alison Sider, Benoit Faucon, Nathan Hodge, Summer Said, Willa Plank and Rachel Rosenthal contributed to this article.