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USA consumers should feel muted impact from rising oil price

OPEC-member nations agreed Wednesday to reduce production by 1.2 million barrels a day after record production levels caused a supply glut, driving the world price of oil below $30 earlier this year.Libya and Nigeria are exempted from the deal following the disruption of the countries oil production facilities, while Indonesia’s membership was suspended due to the country status as a net oil importer.At the close of trading on Wednesday, the price of Brent crude-the benchmark price for global oil-was up $4.09, finishing at $50.47 a barrel. Crude oil prices rallied.”WTI has arrived at the peaks from the middle of a year ago and again in October”, said Ric Spooner, chief market strategist at CMC Markets, adding the next movements in the futures should provide insight into exactly how positively traders view this week’s agreement.The agreement struck by representatives of the Organization of the Petroleum Exporting Countries marked the group’s first concerted effort to slash output since 2008 and sent prices surging more than 10% Wednesday. Key non-Opec countries are expected to reduce production too, by 600,000 barrels per day. “An additional cut of 0.6 million bpd from non-OPEC countries could significantly add to what has been announced by OPEC”.”If no deal is reached, our expectation of rising (crude) inventories through 1H 2017 would warrant prices averaging $45 per barrel through next summer”, Goldman said, noting a move to below $40 per barrel would be hard to sustain.”The market’s rising strongly because there was a lot of skepticism about OPEC’s ability to come to an agreement”, said Mark Watkins, the Park City, Utah-based regional investment manager for the Private Client Group at US Bank, which oversees $US136 billion in assets.Past experience shows Saudi Arabia and its allies have usually done nearly all the real cutting while other Opec and non-Opec members have been left to produce as much as they can.Higher prices, however, are likely to cause more USA shale producers to increase production. “The biggest winners from the agreement are United States shale producers, who will expand production as prices rally”.”In this sense, Russian Federation will play a very important role in bringing other non-OPEC countries to the implementation of this agreement”, he said.If the group maintains the agreed cuts, oil could trade in the US$50 to US$60 range, Morgan Stanley said.Giving details of the agreement reached, the Ministry said that at the 171st meeting held in Vienna, OPEC reached a landmark deal that will effectively cut production by about 1.2 million barrels per day, or about 4.5 percent of current production, to 32.5 million barrels per day.”I see higher oil prices as confirming the end of deflation in most countries, even possibly Japan”, said Marc Chandler, head of currency strategy at Brown Brothers Harriman. “The fact that the oil price is up as a result of that is very positive for the industry in New Mexico”.

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