OPEC Crude Cut Could Push Oil to $75 Per Barrel in 2017

OPEC Crude Cut Could Push Oil to $75 Per Barrel in 2017
OPEC agrees to slice its oil production by more than 1 million barrels per day beginning Jan. 1, raising market hopes and commodity prices.

But there are other issues to consider that may alter OPEC’s scope. In the short term, how U.S. shale producers respond will be a factor. The adherence of other non-OPEC producers can also have a role, said Michael Burns, a global energy partner at Ashurst LLP.

Without a doubt, OPEC still has influence, Burns said. And part of what makes this deal remarkable is that it shows the cartel is willing to change course.

“The idea before was to produce as much as possible and now, it’s not to produce as much as possible,” he said.

But ascertaining OPEC’s impact is weeks, months – even years – away, Burns said, as normalized inventories move the level of oil prices.

“If that level is enough for some of the shale producers to make money, then they may well turn the taps on and you may see an adjustment to the price,” he said. “It’s only then that we’ll be able to see the power that OPEC has. To take the logic on, if shale depressed the price again, then OPEC would have to cut further, and the question is, would they be prepared to do that?”

The initial reaction from the oil market was to jump about 8 percent – tantalizingly, just slightly above the $50 per barrel mark – but it won’t necessarily last.

“It’s a big increase on a daily basis, but the point is, that’s only back to the level it was when the conceptual deal was announced in Algiers a couple of months ago,” Burns said. “I’m not sure that what is happening here is going to make a remarkable difference going forward. But I think it does hopefully give a bit of stability – at least in terms of knowing where OPEC stands.”

Showing that OPEC is prepared to reduce supply sends out a strong signal to give stability to prices.

“But I don’t think it gives the signal that we need to see $70 prices tomorrow,” Burns said. “I suspect it may give stability for a period rather than any rapid increase.”


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shahbaz Ur Rehman  |  December 04, 2016
I agree with bill
Rob Bruckner  |  December 02, 2016
This cut of a million barrels will be made up from the U.S ,Canadian and African producers.This is good for a short term spike in prices however this oil will and can be replaced immediately once the price spike does hit 75 dollars per barrel.Opec is just going to loose market share.They will be hit one way or another.Cannt say I feel sorry for them.
Courtney Isselhardt  |  December 02, 2016
What about Nigeria, Libya, Iran (increasing about 300,000BOPD) and Iraq said they would not cut yesterday. These alone will cancel the OPEC cut. I would wait and see what happens over the next 6 months to a year. If the oil price goes to $60.BO the US shale production will increase rapidly and well have another glut. A lot of ifs have to be answered!
Bill  |  December 02, 2016
It could push it to $75, But it wont. Billions spent buying Permian Basin acreage means billions in drilling and completions. Which means millions of barrels of crude oil coming into the market. Storage tanks will fill through the winter, as usual, affecting price. Basic supply and demand functions are still in play, despite one bit of news that may, or may not, have any effect on oil prices. OPEC agreement merely prevents the price from falling to $25 per barrel through the winter.
john weaver  |  December 01, 2016
As OPEC cuts Texas opens the valves. Nothing changes much as far as the price. We need to reduce our imorts and get oil to $65/BBL

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